No. 16823
Anited States
Court of Appeals
for the Minth Circuit
ESTATE OF WALTER F. RAU, SR., Deceased,
RAYMOND J. SHORB, Administrator With
the Will Annexed,
Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.
Cranscript of Record
In Two Volumes
~s " sy
= 4 i
Volume II JUN!
(Pages 289 to 590)
FRANK HH. SCMMIB, Gut
Petition to Review a Decision of the Tax Court
of the United States
Phillips & Van Orden Ca., 4th & Berry, San Francisca, Calif. —6-3-60
No. 16823
Anited States
Court of Appeals
for the S2inth Circuit
ESTATE OF WALTER F. RAU, SR., Deceased,
RAYMOND J. SHORB, Administrator With
the Will Annexed,
Petitioner,
VS.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.
Cranscript of Wecord
In Two Volumes
Volume II
(Pages 289 to 590)
Petition to Review a Decision of the Tax Court
of the United States
Phillips & Van Orden Co., 4th & Berry, San Francisco, Colif.—6-3-60
Comnussioner of Internal Revenue 289
(Testimony of Robert R. Webb.)
Q. Did you cease your functions as clerk of the
hotel after 1934, when the bar and cafe were opened
by Mr. Rau?
A. Some time around, about that time, he said,
put me in charge.
Q. In charge as what?
A. Well, he gave me—of the hotel, and South-
ern Wine and Liquor Company, the Southern Bar,
not to do any hiring in the bar. I had nothing to do
with the hiring of bartenders or any of the other
help in there. Or I had nothing to do with hiring
the help in the French Cafe.
Q. Well, what was the title of your position
after 1934? [270]
A. Well, Mr. Rau gave me a title as manager.
@. As manager. You got the receipts from the
cafe after 1934, from the steward ?
A. ‘The steward or whoever was in charge in
there, the cashier.
Q. Thank you. After 1934, you took the cash
from the bar out of the eash register?
A. That is correct.
Q. Now, for how many years subsequent to 1934
did you continue to do those things, those two
things that we just talked about?
A. Up until the hotel was demolished.
Q. Do you reeall the date on which the hotel
was demolished ?
A. It was on August, ’47, I think it was around
the 6th, 7th or 8th.
Q. This that you have just explained, you did
290 Estate of Walter F. Rau, S7r., etc., vs.
(Testimony of Robert R. Webb.)
consistently from 1934 up until the date that the
hotel was demolished some time in August of 1947?
A. Every day that I was there at the hotel;
yes, sir.
Q. Was there anything else in addition to this
that you did?
A. Well, I took charge of the bellboys, the other
elerk.
Q. Now, just a minute. Took charge of the bell-
boys [271] and clerk, explain what you mean by
‘“‘took charge of’’?
A. Well, I would hire them and I would have
the privilege of firing or hiring them.
Q. Did you hire or fire any other employee of
the hotel?
A. Maybe a maid or maids, something like that,
I might have.
Q. Maybe a maid?
A. Well, we had several maids. Might have had
authority to hire any of them.
Q. While you were acting as manager, did you
have anything to do with the receipts of the hotel?
ee Yes: Iididk
Q. What did you have to do with the receipts
of the hotel?
A. I would take the receipts, the same as I did
the other accounts.
Q. Now, you worked from 7:00 o’clock in the
morning until 7:00 o’clock in the evening; is that
correct ?
Commissioner of Internal Revenue 291
(Testimony of Robert R. Webb.)
A. Fora period of time, I would take two hours
off at noon, probably from 12:00 to 2:00.
Q. For a period of time?
A. Two hours—excuse me.
Q. After 1934, please state the number of hours
you worked each day. [272]
A. Well, actually, I worked ten hours a day, up
until maybe 1944 or *45,
Q. Now, there was a change then, was there not,
after 1945?
A. About 1944 or 1945, I was carried to the
hospital on a stretcher, and I was out probably a
week or ten days.
Q. In what month?
A. JI don’t recall the month, but during that
time, I was out.
Q. Wait a minute. Before you answer that, you
were out for a week or ten days in some time in
1945 ?
A. 744 or 745, I don’t recall the year.
Q. You were taken out on a stretcher and taken
where? A. To the Mercy Hospital.
Q. The emergency hospital?
A. Mercy Hospital.
Q. Mercy? ae esate
Q. During that week or ten days, do you know
who performed your duties?
A. J understand Miss Goldstein.
Q. You are unable now to recall whether it was
1944 or 1945? A. I don’t remember. [273]
292 Estate of Walter F. Rau, Sv., etc., vs.
(Testimony of Robert R. Webb.)
Q. Would you care to state the nature of your
illness ?
A. Well, that morning I went to the bank and
IT couldn’t pick up a pencil, so I sat down awhile,
and rested. I thought I would be all right, and I
went to the bank as usual.
£ came back and I felt very weak, sat down in a
chair, and F believe Miss Goldstein noticed. Some
guests came up to the counter, and I ecouldn’t
get up.
So they took me to my room and called a doctor.
And the doctor ordered me in the hospital.
Q. And you never learned the nature of your
illness ?
A. Well, I think it was a slight stroke on my
right side, was
Q. Was that because of overwork, did the doctor
say ?
A. Well, I don’t remember the doctor saying
anything about it.
Q. Did they recommend anything for you?
A. Shortly before that, I think it was the time
when they had these new wonder drugs, and I had
a cold, and Mr. Rau said take some of these pills,
take one, maybe every hour. So I took them home
and I took them every hour. And he called me up
at my home, and he said, ‘‘Don’t take any more of
those pills. I told you wrong,”’ he says that should
be every four hours. Whether that had [274] any-
thing to do with it, I don’t know.
Commissioner of Internal Revenue 293
(Testimony of Robert R. Webb.)
Q. Well, did you ask the doctors if that had
anything to do with it?
A. IJ don’t remember. I was mn pretty bad shape
there for a couple days, and I don't recall what
went on with the doctors.
@. Did you explain that to the doctors at that
time? A. I probably did.
Q. What was their answer?
A. I don’t remember.
Q. You don’t remember? A. No.
Q. Were there any other duties as manager of
Southern Hotel over and above that which you did
for the bar, and the taking the cash from the stew-
ard at the cafe?
A. Well, just to see that it was order kept in
the hotel, and the hotel was kept clean and check
on the maids, and the other clerks. That is about all.
Q@. How many hours a day did you devote to
the management of the hotel ?
A. Well, it was ten hours a day, from up until
1944 or *45, and after that, I would go in and work
around 9:00 o’clock, 10:00 o’clock in the morning,
and probably stay until 5:00 in the afternoon.
Maybe 5:30, 6:00, no special time. [275]
Q. So, you worked ten hours a day at the hotel?
A. Practically ten hours; yes, sir.
Q. How much time did you devote to the bar,
and the cafe?
A. Well, very little time to the cafe. In fact, I
didn’t have anything to do with the cafe. The bar,
294. Eistate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
I would go back and forth, but no special hours or
anything like that.
Q. Nothing to do with the cafe?
The Court: You mean apart from receiving the
cash ?
The Witness: Yes, sir, your Honor.
Q. (By Mr. Simpson): During the time that
you were obtaining or receiving the receipts from
the cafe, you received daily receipts from the stew-
ard, did you? A. Yessir
@. And also the cash, at the same time?
A. Yes, sir.
Q. When you received the daily sheets from the
cafe, you took a deduction from those receipts, did
you note the amount of the deduction on the day
which you received that daily sheet from the stew-
ard of the cafe?
A. Well, $10 a day every day in the week.
Q. Wait a minute, now. I don’t want to inter-
rupt you. At the time you received the daily sheets
from the [276] steward of the cafe, along with the
cash, did you or did you not on that same day
write down on the sheet the amount taken off?
A. Well, I wrote down the amount taken off. I
might have—take it off of the total receipts, but I
would take off $10 anyway, every day.
Q. Axe you through, sir; is that your answer?
PemeY CS wciile
Q. I ask you, at the time you received the daily
sheet from the steward at the French Cafe, along
with the cash, did you, or did you not, on that same
Commissioner of Internal Revenue 295
(Testimony of Robert R. Webb.)
day, write down on the daily sheet the amount of
money taken off the top, as you say?
A. L would take off $10 a day. Might have been
occasions where Ma. Rau would say take the $10 off
the total receipts.
Q. Abr. Webb, I know that I don’t want to in-
terrupt vou. | have asked that same question twice.
You have yet to answer it. A. Yes. Then
®. The answer is ves, vou put it, wrote it down
on the same day that you received the daily sheet
from the [277] steward?
A. Same dav; ves, sir.
Q. All right. Sir, did you write anything else
down on those daily sheets at that same time, other
than the amount taken off?
A. I would probably deduct the supplies from
i entotad.
Q. You say deduct the supphes from the total.
Did I understand that answer correctly ?
ieee ey CS.) Sit.
Q. Did vou write anything else?
A. I don’t remember that I wrote on them now,
unless I could see the sheet.
Q. I will ask you, did you add anything?
A. At times, I would. Mr. Rau would have me
add a check to it, to make it respectable, what he
thought would be a respectable figure.
In other words, after we get through deducting,
we had $250, he might have me write out a $50
check to make it over $300.
296 Estate of Walter Ff. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
Mr. Simpson: Would you mark this group of
papers Petitioner’s Exhibit next in order.
The Clerk: Petitioner’s Exhibit No. 20 marked
for identification. [278]
(The documents above referred to were
marked Petitioner’s Exhibit No. 20 for identi-
fication. )
Q. (By Mr. Simpson): Mr. Webb, I show you
Petitioner’s Exhibit—just a minute, sorry. Strike
that from the record.
Mr. Webb, I show you Petitioner’s Exhibit 20
for identification, and ask you if vou ean identify
No. 10 appearing under $283.60?
he Court: Showing him the front sheet for that
exhibit.
My. Simpson: Yes.
@. (By My. Simpson): Bearing date of Sep-
tember 20, 1943, and ask if that $10 underneath
that figure, below that figure, is written by you?
A. It was.
Q. The balance then becomes $273.86; is that
correct? A. Yes, sir; that is correct.
Q. Now, there is the sum of $33.35, which is
added to that result, making the total of $307.21.
vee Unetris Correct,
@. My question is, explain the $33.35, which you
added to $273.86. [279]
A. Well, after the deductions, there were
$273.86. I may have checked out $33.35 to make the
total deposit $307.21.
Commissioner of Internal Revenue 297
(Testimony of Robert R. Webb.)
Mr. Rau would say, *‘Make a check out for sup-
plies;’’ on the stub vou will find supplies, to make
it over $300 deposit. In other words, he wouldn’t
want to put in just $273, he would make out a check
for $33.35 to make it look a little better, make it
bring it over $300.
Q. So, he deposited a check for $33.25 after
taking $10 in cash out?
A. I would make the check out and cash it and
add that onto the deposit, to make it from $273 to
$307.
Q. You drew—lI don’t want to interrupt you—
you drew a check for $33.35?
A. That is right.
@. And then you cashed that check?
A. I would cash it and deposit to $307, instead
of $273. And I would eall this, he would have me
make out a check for $33.35 and mark it supplies.
Q. Well, if the check were marked supplies for
$33.35, please explain how it was that you could
add it to the total receipts and have a deposit of
$307.21 2
A. $307.21 was a deposit made as the receipts for
that day; instead of deposit of $273, we made it
$307. And My. Rau would instruct me to make
out the check for, to [280] bring the amount over
$300.
Q. Well now, Mr. Webb, if the check for $33.35
represents supplies, please state how it could be
added to receipts to become a part of the total
deposits ?
Pe)
298 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
A. All I did was follow instructions on this. I
didn’t have anything to do with the bookkeeping.
What the bookkeeper did, I don’t know. This would
be given to the bookkeeper, and she would have the
amount of supplies taken off that day.
@. Well, the bookkeeper didn’t have anything to
do with writing that $33.35 on that paper?
A. No, but she would get this after I finished
the deposit.
Q. You wrote the $33.35 on there, showing the
addition ?
A. That is right. I was told to, instead of de-
posit, otherwise we would have deposited $273. So,
the $33 brought it over $300, which made the de-
posit look better in Mr. Rau’s eyes.
Q. Now, we have this then, you correct me if I
am wrong, in what you said, we have Mr. Rau in-
structing you, as you say, to take off $10 a day. On
this particular day, September 20, 1943, he now
instructs you to add $33.35, just to make the deposit
look good, which has the effect now of adding
$33.35 to receipts that he actually did not [281]
receive for that day, just to make the deposit look
good.
A. The actual receipts for that day were $384.17.
Q. What was that, Mr. Webb?
A. The actual receipts for that day were
$384.17.
Q. Less what?
A. Less $100.29 paid out, which is this.
Q. Yes. Who wrote these figures?
Commussioner of Internal Revenwe 299
(Testimony of Robert R. Webb.)
A. That was written by the steward, or the
cashier in the restaurant.
Q. So, the items comprising the $129 were all
identified and written in someone else's handwriting
at the French Cafe?
A. We would have vouchers to show for all this.
Q. Who had the vouchers?
A. It was brought in with the payout for this.
Q. Now, these items, now written in somebody
else’s handwriting, presumably the steward of the
French Cafe—— Eee Sil,
Merchandise, wages, what is this word ?
Gunlite, that is the plumbing.
Q
A
Q. Guualite, laundry
A. Aerated products.
@. Aerated products, did you say?
A. It looks like that. I don’t know.
@. That is not important. Chicken, produce,
oranges, [282] pies, creamery
A. lLangendorf bread.
@. Langendorf bread ?
A. French bread.
Q. French bread and golden crust wheat bread?
A
Q.
(Moe IS mele
They total $129, and they are subtracted from
$384.17. That leaves a total cash of $283.86; is that
correct ? A. That is correct.
Q. Now, this is where your handwriting comes
in, $10 deducted from $283.86, leaving $273.86 2
A. Yes, sir.
300 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
Q. Now, a sum of $33.85 is added to that to
bring a total of $307.21?
A. Yes, sir.
That was the amount of the deposit that was
made in the bank.
The Court: Now, the $33.35, $33.25——
Mr. Simpson: ‘Thirty-five cents, your Honor.
The Court: Thirty-five cents, you have testified
represented cash which you obtained by cashing a
eheck ?
The Witness: JI would make out a check, your
Honor, for $33.35. On the stub I would put supphes.
The Court: So the stub of that check then
would [283] indicate that the French Cafe had
purchased supplies in the amount of $33.35?
The Witness: Yes, sir.
The Court: I suppose then that for, if that
$33.39 were reflected on his returns as an additional
supplies purchased, that would offset the increase
in receipts that are shown on the first page of Ex-
hibit 20, for that particular day, so that it would
be an artificial entry that would just be neutralized
by corresponding deduction for supplies purchased.
Q. (By Mr. Simpson): Mr. Webb, I ask what
is your explanation for the $33.35?
A. Mr. Rau would ask me to, always have me
make out a check to make a respectable figure to
put in the bank. Otherwise, I wouldn’t deposit
$273.86. I don’t know how the bookkeeper handled
this other. I had nothing to do with that.
Q. I want to keep on that $33.35, Mr. Webb.
Commissioner of Internal Revenue 301
(‘Testimony of Robert R. Webb.)
A. Well, that 1s what I am trying to tell you.
Q. It was added to the receipts after deducting
the $10? ees, Sil
Q. Now, if we understand simple arithmetic, he
has deposited $23.35 more than he subtracted; is
that correct ? [284] A. He added on $33.35.
Q. Would you answer the question; is that cor-
rect?
A. You are asking me if that was the $33?
Q. I am just going to ask you now, and I don’t
want to interrupt you.
The Court: J think I understand your question,
Mr. Simpson, but I don’t think the witness does. I
suggest vou rephrase it.
Mv. Simpson: All right.
Q. (By Mr. Simpson): I ask you to take that
sheet right before you, September 20, to determine
and tell me whether or not the figures, the total net
figures show a deposit of $23.35 more than was
actually deducted ?
A. It shows more; yes, sit.
Q. Now, will you add the figures and put it in
the record how much more it is for that day?
A. The total deposit that day was $307.21. What
was left after deductions was $273.86. $33.35 added
on.
Q. Mr. Webb, I will put it to you, after taking
into account the $10 which you deducted in the
receipts and considering the $33.35 actually added
back to receipts, how much more has been de-
302 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
posited as receipts? A. $33.35,
Q. Less [285] A. The $10.
Q. So that means how much more was deposited ;
what is the net difference?
The Court: The Court can do the——
The Witness: $33.35.
Q. (By Myr. Simpson): More that day?
A. Yes.
@. That is what I wanted to get from you.
The Court: Mr. Webb, did that happen very
often ?
The Witness: Yes, sir.
Mr. Simpson: Now, if your Honor please, that
happened quite often, and I can assume a lot of
time in doing this, which I will do, if I have to, of
course.
tT want to show you Respondent’s Exhibit M.
These are photostatie copies of these.
Q. (By Mr. Simpson): In order to establish
that for the record, I ask you to look at a daily
sheet dated September 25, 1943, which is part of
Petitioner’s Exhibit 20 for identification, and ask
you to refer to both of them now, see whether or
not they are identical, if this Respondent Ex-
hibit
A. They are identical.
The Court: What are you comparing it with,
Mr. Simpson?
Mr. Simpson: The Respondent’s Exhibit M.
The Court: Which sheet in Respondent’s Ex-
hibit M?
Commissioner of Internal Revenue 303
(Testimony of Robert R. Webb.)
Mr. Simpson: Sheet dated September 25, 743,
and labeled S-8. That is identical.
I would like the record to show that that is the
first sheet submitted by the Respondent in connec-
tion with the withholding, that the first date ap-
pearing on the sheets in Petitioner’s lixhibit 20 for
identification is September 20.
Now, let’s see. I will get to it faster this way.
Q. (By Mz. Simpson): §S$-10, tab number on
Respondent's Exhibit M, that is the date of Novem-
ber 17, 1943; Mr. Webb, I ask you to refer to Peti-
tioner’s Exhibit No. 20 for identification, the daily
sheet of the French Cafe. A Yes) sine
@. Dated Wednesday, November 17, 1943. I ask
you to show where any amount was subtracted as
take-offs ?
A. Well, probably $10 taken off the total re-
ceipts.
Q. Your Counsel has indicated to you where
vou might find your answer by looking on the re-
verse ‘side.
A. No, no. I know that probably some others
the same way.
Q. I ask you to look, the handwriting, 1s that
your handwriting on the reverse side of this [287]
sheet? A. No, that isn’t.
Q. That is not vour handwriting, is it?
A. J don’t believe so.
Q. Now, do you know whose handwriting that
is, Mr. Webb? On the reverse side.
AS Noy iedon t, no, sim
304 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
@. On the reverse side of the daily sheet dated
November 17, 1948, of Petitioner’s Exhibit 20 for
identification, you do not know whose signature
that is?
It ask you to refer to sheet dated November 19,
1943, of Petitioner’s Exhibit 20 for identification,
and ask you to tell the Court where you see a de-
duction in any amount for that day?
A. I don’t see any in there. That is not my
writing.
The Court: How do you explain the fact that
there wasn't $10 recorded on that shect as having
been deducted ?
The Witness: Well, I was, evidently wasn’t
there that day, and My. Rau might have, whoever
took it off, might have taken the cash. Probably
had taken it off the total receipts, is the only way
I can explain it, the only way I can explain it,
because I wasn’t there that day.
Q. You weren’t there that day? [288]
A. It is not my writing.
Q. If you were there, you definitely would have
marked it down?
A. Not definitely, I might have taken it off the
total receipts, if Mr. Rau was standing there, in-
stead of 625, might put down 610.
Q. I haven’t covered this. I ask you to look at
sheet dated November 20, 1943, being the original
sheet of the French Cafe, and part of Petitioner’s
Exhibit 20 for identification, and ask you to ex-
plain to the Court the deduction, if any, on that day.
Commissioner of Internal Revenue 305
(Testimony of Robert R. Webb.)
A. Well, $110 with $470.25, and $110, which left
a balance of $360.25.
Q. That is more writing?
A. That is Consumers Meat Company, $99.40, by
check.
Q. Did you write that? NaNO, Sil:
Q. There is another item, $10.50 return from
Rose. A. That is not my writing.
Q. Was that considered in the
A. Well, I don’t recall. ft ts 1943. I haven’t any
idea what it is.
®. $10.50 return from Rose. Do you know what
that means? A. No, sir. [289]
Q. Can you explain it?
A. I can’t explain it. [ can’t remember.
Q. Can, you cannot explain it.
Do you recognize the handwriting, $10.50, return
from Rose? A. No, sir.
Q. You do not recognize that handwriting?
ON Onsit:
Q. I ask you to look at daily sheet dated No-
vember 22, 1943, part of Petitioner’s Exhibit 20 for
identification, and ask you to identify the number
10 appearing below 2/29/39.
A. This would be my writing, 10 and this.
Q. Is this all of your writing, the 10?
A. ‘Ten, yes.
Q. And the 1939? A. Yes, sir.
Q. I ask you to look at sheet number, dated
November 24, 1948, bemg part of Petitioner’s Ex-
hibit 20 for identification, and ask you to explain
306 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
the deduction, if any, claimed for that day, for the
taking off.
A. That is not my writing, so I don’t have any
idea what it is.
@. Is there any deduction for that day?
A. The total receipts reading of the cash regis-
ter [290] was $398.07, and $1.50 tickets, receipts
$396.57; paid out, $175.52; left the bank with
$221.05.
Q. Is there a figure of 10 subtracted from those
receipts for that day? A. No, sir.
@. Would you please explain why there was no
deduction on that day?
A. Well, whoever handled the cash that day,
Mr. Rau would probably have them take it off the
total receipts.
@. You weren’t there that day ?
A. I wasn’t there. I don’t remember.
q. You weren’t there?
The Court: You mean the figure appearing op-
posite the word reading, namely 398?
The Witness: 07.
The Court: And 07.
The Witness: I don’t
The Court: All are represented a subtracted
amount of $10?
The Witness: That is the only way I can inter-
pret this, your Honor. It is not my writing. I evi-
dently wasn’t there that day.
Q. (By Mr. Simpson): I ask you to look [291]
at——
A. That would be the same.
Commissioner of Internal Revenue 307
(‘Testimony of Robert R. Webb.)
Q. Sheet dated November 25, 1948, being part of
Petitioner’s Exhibit 20 for identification, and ask
you to explain the deduction, if any, for that day?
A. The only deduction is the $41.60, for paid
out.
Q. Not the $10 a day that you have testified to
previously ?
A. No, that is not my writing.
Q. But there was no deduction on that day?
A. Not on that sheet.
@. And you were not there that day?
A. Evidently not.
The Court: Would you come back to that day
again ?
Mr. Simpson: November 25, 1943?
The Court: November 25. What was the total
amount of receipts at the bottom of that page?
The Witness: $559.09.
The Court: Now, I notice underneath that there
appears to have been some writing in pencil that
was erased, and the erased writing appears to be
visible.
The Witness: It looks like
The Court: ‘T’o my eve, the erased writing looks
like $110. Would you so interpret that? [292]
The Witness: Yes, sir, it looks hke——
The Court: And that, that in turn, has been
subtracted from the word ‘‘bank’’ of $559.09, and is
there still further an erased item at the very bottom
of that page, which is legible?
The Witness: Yes, sir.
The Court: What is that?
308 Estate of Walter F. Rau, Sr., ete., vs.
(Testimony of Robert R. Webb.)
The Witness: $449.09. Looks like it is blurred
over.
The Court: Well now, I have before me Re-
spondent’s Exhibit O, and ask you to turn to the
entries for Thursday, November 25, 1948, and is
that in your handwriting?
The Witness: Yes, sir.
The Court: What is that?
The Witness: $449.09.
The Court: Well, would that—what conclusion
do you draw then from this entry on Exhibit O for
the date of November 25, and the entries on the
page relating to November 25, in Exhibit 20?
The Witness: Well, there is $110 taken off here.
J don’t know how that-—-I don’t believe it was
erased. It looks like a smudge, which leaves $449.09,
which was the same as the—which was the deposit
for that day.
The Court: Well then, is it your interpretation
that $110 had been taken off? [293]
The Witness: Yes, sir, your Honor.
The Court: For that day?
The Witness: Yes, sir.
Q. (By Mr. Simpson): Now, the blurred writ-
ing that you have just referred to is in your hand-
writing ? A. Yes, sir.
Q. What would be the purpose of having such
a blurred handwriting ?
A. I haven’t any idea.
Q. Or erasure?
A. It hasn’t been erased. Pencil or something
like that, dark pencil.
Commissioner of Internal Revenue 309
(Testimony of Robert R. Webb.)
Q. In other words, you do not believe it was an
attempt to erase that?
A. No, I don't. That was actual deposit; that
‘would lave to be that way.
Q. Now, looking at the next sheet, dated No-
vember 26, 1943, of the same exhibit for identifica-
tion, I ask you to now to tell the Court where there
is a deduction for $10 or any other amount’?
Eee N'O, Sir.
@. And the reason?
A. I don’t know. I wasn't there that day.
Q. Not there on 26th of November. [294]
lt ask you to refer to the next sheet in chrono-
logical order, being November 27, 1948, to tell the
Court
The Court: Will you turn back to the entry on
November 26? What was the amount of the total
shown on that?
The Witness: $423.51.
The Court: What was the total net amount?
The Witness: The net was $270.74.
The Court: What amount did you show as hav-
ing been received in Exlibit O, for that day, on
November 26?
The Witness: $260.74.
Mr. Simpson: ‘That would be
The Court: That is the $10 less than the amount
appearing on Exhibit 20?
The Witness: Yes, sir; yes, sir.
Q: (By My. Simpson): But there was no nota-
tion or entry made on the daily sheet to reflect that?
310 Estate of Walter F. Rau, Sr., etc., vs.
(‘Testimony of Robert R. Webb.)
Well, the record speaks for itself. It isn’t on
there. .
The Court: Does that mean that sometimes $10
was, in fact, deducted, and not put down on the
daily sheet?
The Witness: It could be; yes, sir. Mr iia
might [295] say, ‘‘ Well, take $10 off the total read-
ing, “‘because I know I had $10 every day, as far as
{ can remember.
Q. (By Mr. Simpson): Let’s go to November
27. Might as well keep that Exhibit O handy.
The Court: Would you hke to have it?
Mr. Simpson: Yes. Sure, vou can read it out
just like you have been doing.
®. (By Mr. Simpson): November 27, and ask
you to show where, if at all, there is a deduction of
$10 on that day?
A. Doesn't show on the sheet; no, sir.
Q. By referring to Respondent’s Exhibit O, on
that same day, November 27, the receipts from the
cafe of $413.62 A. Yes, sir.
Q. The amount shown on the daily sheet, $573.62.
The difference between that would be $160?
A. That is right.
Q. And that is what you withheld on Saturday,
November 27, 1943?
A. This is not my sheet, but whoever took this
off, took off $160 evidently. But didn’t show it on
the sheet is all.
The Court: But is Exhibit O in your hand-
writing? [296]
The Witness: This is in my handwriting.
Commissioner of Internal Revenue 311
(Testimony of Robert R. Webb.)
The Court: Exhibit O07
The Witness: That is right; yes, sir.
Q. (By Mr. Simpson): Well then, how did you
know that, Ma. Webb, to take off $160 on this day,
if you didn't see this similar sheet ?
A. Whoever took, they—this sheet off—gave me
the $150 or $160 and didn’t write it on here, didn’t
deduct it from here. That is all.
Q. Were they supposed to deduct it from the
original daily sheet?
A. Not necessarily; not necessarily, no.
Q. Well, so that there is no mistake
A. That is all right.
Q. Whoever was supposed to take off the $160
didn’t do it, I believe you said, but vou did it, when
you wrote it down in the day book for the French
Cafe, for Saturday, November 27?
A. The day this sheet was made out, and I don’t
know what the date was, Saturday, I was not at
the hotel. I wasn’t there, or I didn’t make the sheet
out, but the money was taken off and given to me to
put in the envelope, and I just made a deposit
which was the actual deposit.
Mr. Simpson: If your Honor please, I would
like [297] the record to show that the handwriting
in the day book, Respondent’s Exhibit O, dated
Saturday, November 27, 1943, appears to have had
another number or figure which have been written
over by this witness.
The Court: I will state for the record that there
appears to have been some other writing under-
neath the figure $413.62, and that that writing ap-
312 Estate of Walter F. Rau, Sr., ete., vs.
(Testimony of Robert R. Webb.)
pears to have been erased, and the figure $413.62
superimposed over the erasure.
I cannot tell by, at least by casual inspection what
the erased figure was.
Mr. Simpson: Thank you.
Q. (By Mr. Simpson): Now, Mr. Webb, com-
ing back to the daily sheets, calling your attention
to the cne dated September 21, 19438, more specifi-
eally, I direct your attention to the figure of
$61.30, appearing just below the figure of $354.38,
which we added to the figure preceding it, totals
$415.68, as reflected thereon, I ask you now, are
those figures in your handwriting ?
A. Yes, they are, sir.
Q. Please explain the purpose of the addition
of $51.29 to the figure of $354.38?
4
rhs
4iie
After the $10 was taken off, there was
$354.38. So, I was instructed to make out a check
to bring it over $300, so I made out a check for
$61.30, and called it supplies. [298]
Q. And if you made a check out for $61.30 and
called it supplies, how could you deposit that check ?
A. Well, I could add it right on the receipts, I
deposited $415. I don’t remember how the
The Court: Did you deposit the check or did
you cash the check?
The Witness: I don’t remember. I probably
eashed the check and made a deposit of $415.
Q. (By Mr. Simpson): What account would
you draw a check for $61.30 to be added to that
$354.38 ?
Commissioner of Internal Revenue 313
(Testimony of Robert R. Webb.)
A. To make it respectable looking, deposit for
that day.
Q. On what account did you draw the check?
A. On the French Cafe, French Cafe account.
Q. You drew a check on the French Cafe ac-
count for $61.30 and added it just to make it look
respectable after taking $10 off?
A. I would be instructed to make a check out.
Q. Mr. Webb. I don’t want vou tell me what
your instructions were. I asked you whether or not
the $61.30 increases the receipts for that day?
A. The $61.80 increased the receipts for that
Cayeeyes, Sil
Q. Less the $10 taken off? [299]
A. Yes, sir.
Q. So, the net increase of receipts for that day
is $51.30; it is a matter of arithmetic.
A. Yes, sir.
Q. We will agree on that? A, Wes, sin:
@. I ask you to look at the daily sheet dated
September 22, 1943, call your attention to the fig-
ure of $25.30, added to the sum of $308.13, and ask
you if that is your handwriting ?
A. Yes, it is. That would be the same as the
other.
Q@. Same preceding? ia CS cit
Q. Daily sheet so that the net increase for the
day is $15.30 over and above the actual receipts;
correct ? A. Yes, sir.
Q. Thank you.
I eall your attention to the daily sheet dated
September 23, 1943, ask you whether or not the
314 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
figure of $10 appearing just below the sum of
$244.35 is your handwriting ?
A. $10 is my handwriting.
Q. And that was subtracted from the preceding
figure ? A. Yes, sir.
Q. Is that correct? [3800] A. Yes, sir.
Q. Leaving a net figure of $234.35?
A. Yes, sir.
Q. Now, below the figure of $234.35 appears a
figure of $71.30, which obviously was added to the
preceding ?
A. To bring it over $300; yes, sir.
Q. To bring it over $300. The net receipts over
that and above that which were received on that
day is $71.30, less $10 for a net increase of $61.30,
over and above the actual receipts for that day?
A. Yes.
Q. I eall your attention to September 24, that
daily sheet dated September 24, 1948, ask you
whether or not the figure of $10 appearing just
below $306.10 is in your handwriting?
A. Yes, sir.
Q. Subtracting the $10 from that figure gives
the result of $296.10? Awe Yes, su
Q. Just below $296.10 is an item of $52.10,
which would be, obviously from the result was
added to the $296.10? A. Yes, sir.
Q. Correct? [3801] Ae Ves, sine
Q. You have the net increase for the receipts
of that day over and above that which was taken
out would be $42.10? A. Yes, sir.
Q.' In other words, you reported, Mr. Rau re-
Commissioner of Internal Revenue 315
(Testimony of Robert R. Webb.)
ported $42.10 more than he actually took in, if
these figures are correct?
A. He alveadyv took, he also took off $139.36
which was actually paid out in cash from the res-
taurant from the total receipts.
Q. Just a minute now. He didn’t take it off, it
was subtracted by whoever the clerk was at the
French Cafe, who put the figures down here for
these various items, that total $139.36, so Mr. Rau
didn’t take it off, did he? A. No.
Q. You didn’t mean that, did you?
A. Well, I subtracted the paid out for that day,
from the total reading is what I mean.
QO} That 1s proper; isnt a, nothine irtesnlar
with that, about that, is there?
Mr. Gardner: May the witness be allowed to
answer this, your Honor? I think he still has more
to say, Mr. Simpson. [302]
Q. (By Mr. Simpson): Do you have anything
more to say?
A. I think the bookkeeper would take these fig-
ures which, when she got this sheet, she would
probably take these supplies off of it, charge them
off to the French Cafe.
Q. Is there anything irregular about that?
A. I don’t know. I have no knowledge of book-
keeping.
@. You think she put in correct figures now?
A. I don’t know how she handled that.
Q. Let’s assume these figures now that you have
brought it out, yourself, Pacific Freight for $1.44;
see that? A. Yes.
316 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
Q. Anything irregular with respect to that?
ie ING, Sir.
Q. Wages, $12.49? A. No.
Q. Anything that would arouse your suspicion ?
BG ING,
Q. Railway Express, 83 cents; anything there
to rouse your suspicion ?
A. No. What I was trying to get at is the total
receipts that day for $444.46.
Q. Yes. Now [303]
A. We made a deposit of $348.20. How that was
handled by the bookkeeper, of course, I don’t have
any knowledge of that.
Q. Do we have to diseuss the bookkeeper with
respect to these figures ?
A. No, these are my figures.
Q. So, we will get a stmple answer. Has not the
receipts for September 24, 1943, been increased by
$24.10 over and above that actually reported, ac
cording to your records that you kept?
‘A eds. S10,
Q. Thank you.
Now, calling your attention to September 25,
1943, I ask you to refer to the figure of $110 ap-
pearing just below the $483.90, and ask if that is
in your handwriting ? A. Yes, sir.
Q. That is your handwriting, the $110?
A. Yes, sir.
Q. That is subtracted from $483.90, leaving the
sum of $373.90 as a balance; that is correct, is it not?
A.» Yes, €1r-
Commissioner of Internal Revenue 317
(Testimony of Robert R. Webb.)
Q. The figure immediately below that is $27.20?
Bee Yessir
Q. Which is added to $3837.90, giving a total of
$401.10? [304] AY 6s) S10,
Q. Are all those figures in your handwriting ?
A. They are.
Q. Please explain the purpose for the addition
Ol Gere
A. $20.20 is put in for supplies to bring it up
to $401.10.
Q. In other words, supplies are brought up?
ee Ses, sir,
Q. To that you now know, can deposit money
in the bank? Ne. GES. S11",
Q. Calling your attention to daily sheet dated
september 27, 1943, for the French Cafe, I direct
your attention to the figure of $332.78, below which
there is a sum of $10 subtracted. Is that $10 in vour
handwriting ? A. Yes, sit.
Q. The net result of $322.78 is in your hand-
writing also? A. Yes, sir.
Q. And there is an addition of $32.15 to that
figure ? iY Caecin:
Q. Making a total of $354.93? Few Ces eciny
Q. Now, the addition of $32.15 was added [305]
for what reason, Mr. Webb?
A. Supplies, supplies.
Mr. Simpson: If your Honor please, you want
me to go all the way through this, because the same
thing is going to apply all the way down. T will be
318 Estate of Walter F. Rau, Sr., ete., vs.
(Testimony of Robert R. Webb.)
glad to do it, if it would be of any help to the
Court.
The Court: It appears to be repetitive.
Mr. Simpson: Yes, it is. But I want to show
the general pattern of the adding back of these fig-
ures.
The Court: Are you going to offer Exhibit 20 in
evidence ?
Mr. Simpson: Yes.
The Court: The exhibit will speak for itself, I
take it.
My. Simpson: What I could do is have a sched-
ule made up attached to it, showing the additions
which would be of help, and of course, you could
go from there. I am trying to save some time.
The Court: You wish to offer it now?
Mr. Simpson: Yes.
Mr. Gardner: No objection, your Honor.
The Court: It will be admitted.
(The document heretofore marked for identi-
fication as Petitioner’s Exhibit No. 20 was re-
ceived in evidence.) [306]
Q. (By Mr. Simpson): Very briefly, Mr. Webb,
directing your attention to Petitioner’s Exhibit 20,
the items about which we have had discussions, that
is the additions to the receipts are for supplies
which have been added? A. Yes, sir.
Q. What was the source for which you obtained
that information to arrive at the figure of $33.35 as
Commissioner of Internal Revenue eo
(Testimony of Robert R. Webb.)
supphes over and above the items already set out
by a clerk of the French Cafe?
A. Well, the supphes, the paid out for that day,
cash pay out was $100.29.
The Court: You are referring to what day now?
Mr. Simpson: September 20, 1948.
The Witness: Which left a bank balance of the
bank of $283.86. $10 deducted from that made it
$273.86. I added $33.85 to bring it back, the re-
ceipts for the bank at $307.21.
Q. (By Mr. Simpson): Now, you added that—
strike that.
You added that $33.35 to the receipts?
A. Yes, sir.
The Court: And on that day was $10 actually
taken off and put in the envelope?
The Witness: Yes, your Honor. [807]
The Court: And put in the safe?
The Witness: Yes, your Honor.
The Court: In accordance with the practice that
vou had previously testified to?
The Witness: Yes, sir.
Q. (By Mr. Simpson): But the net result is
that you reported $23.35 more than you took in
that day?
A. That was just to, as I was trying to say, to
bring these, to bring our receipts for the day that
would show, to bring it up over $300, and make a
respectable deposit.
Q. Yes. I mean, the sheets are now more
A. And Mr. Rau would instruct me to make out
320 state of Walter F. Rau, Sr., ete., vs.
(Testimony of Robert R. Webb.)
a check. He wouldn’t—sometimes he would say
make it over $300.
Q. Now, Mr. Webb, the daily sheet of the French
Cafe for Monday, September 20, 1943, reflects, ac-
cording to your figures, you had admitted receipts
of $307.21? Ae Cheap tcerieiit
Q. I show you Respondent’s Exhibit O, being a
daily book, reflecting the receipts from the bar and
the French Cafe, and ask you to give the figure of
receipts reported for the French Cafe on Monday,
September 20. A. $307.21. [808]
Q. Now, that, of course, corresponds with the
receipts that you show for the French Cafe on
September 20, 1943? A. It does.
Q. Actually, $23.35 more than that was taken
in that day, after making allowance for the $10
which you deducted ?
A. The total receipts that day were $384.17.
The money I received was $283.86. Then I took
off the $10 which left the balance of $273.86. I
added on $33.35, which left the deposit for, the
deposit for $307.21, the same as——
Q. Which you reported as receipts?
A. Yes, sir.
@. For the cafe?. A. Yes, sir.
Q. Now, I don’t want to interrupt you, and you
didn’t answer my question; give you another chance
ane Tne,
The Court: I think you are arguing with the
witness. I can do the arithmetic, Mr. Simpson.
Mr. Simpson: I want to make him admit it.
Commissioner of Internal Revenue 321
(Testimony of Robert R. Webb.)
Q. (By Mr. Simpson): Mr. Webb, I direct your
attention to the daily sheet of the French Cafe
dated September 21, 1948, being Petitioner’s Eix-
hibit 20, in evidence now, direct your attention to
the sum of $61.30 appearing immediately below
the sum of $354.38, and ask you if that is in [3809]
your handwriting ? A i ais
Q. And was that $61.30 added to this $354.38?
A. Yes, sit.
Q. Giving what total? A. $415.68,
Q. Now, I show you Respondent’s Exhibit O,
being the receipts for the bar and the French Cafe,
direct your attention to the date of Tuesday, Sep-
tember 21, and ask you to state what the receipts
were reported for that day? A. $415.68.
Q. Corresponds exactly with the receipts appear-
ing in the original sheet of the French Cafe on
the same day? A. Yes, sir.
Q. Which we considered in connection with the
$10 subtracted by you, increases the receipts that
day by $51.30 over and above that actually received ?
ie Yes sit:
Mr. Simpson: I have more along the same, just
gvoing to be a repetition, but maybe for the record
it should go in.
The Court: The exhibit also is in evidence, and
T can compare them, myself.
Mr. Simpson: Then I think this is a good stop-
ping place for lunch. [310]
The Court: Very well. We will recess until 2:00
o'clock.
322 Estate of Walter F. Rau, Sr., ete., vs.
(Testimony of Robert R. Webb.)
(Whereupon, at 12:50 o’clock p.m., the hear-
ing in the above-entitled matter was adjourned
until 2:00 o’clock p.m. the same day.)
Afternoon Session—2:00 P.M.
The Clerk: For the record, petitioner’s Ex-
hibits 21, 22, 23 and 24 marked for identification.
(The documents above referred to were
marked Petitioner’s Exhibits Nos. 21, 22, 23,
and 24 for identification. )
ROBERT R. WEBB
resumed the stand, having been previously duly
sworn, was examined and testified further as fol-
lows:
Cross-Examination
(Continued )
By Mr. Simpson:
Q. Mr. Webb, I show you Petitioner’s Exhibit
21 for identification, and call your attention to sheet
dated January 5, 1944, and ask if the figure of $10
appearing directly under $216.82 is in your hand-
writing ? A. That is right.
Q. That $10 is subtracted from the——
A. Yes, sir.
Q. preceding figure, result is $206.82 ?
A. Yes, sir.
Q. And right below that figure of $206.82 ap-
pears a figure of $62.30? Ja SURS SNE.
Q. That is added, is it not, to $206.82?
Commussioner of Internal Revenue 323
(Testimony of Robert R. Webb.)
me Yes, sire(/312]
Q. In that connection, I show you Respondent’s
Exhibit N, being the year book for the French
Cafe, and the bar, for the year 1944—is that cor-
rect, 1944?
A. That is ’44. I don’t know.
Q. °44. I direct your attention to the entry ap-
pearing on Wednesday, January 5, the date appear-
ing in that date book 1s 1938, and this particular
book was used to record the receipts for 1944. Do
you know whether or not that is right, Mr. Webb?
A. J don’t remember the book. I don’t remem-
ber.
Q. Then I ask you this, the entries appearing
under date of January 5, 1938, in the amount of
$269.12, is that in your handwriting ?
Pv eS, 1b 16) ) Sli:
Q. That corresponds, does it not, to the figure
appearing on the daily sheet for the French Cafe?
A. Yes, sir.
Q. $269.12. Taking these figures, the subtractions
and additions, the net result is that the sum of
$52.30 has been added to the receipts over and above
the actual receipts for that day? A. Yes, sir.
The Court: May I see, Counsel?
(Discussion off the record.)
Mr. Simpson: If your Honor please, Petitioner
has many more items similar to that, which we
have been [813] reviewing with this witness. Coun-
sel for Respondent has indicated willingness to
324 Estate of Walter I’. Rau, Sr., ete., vs.
(Testimony of Robert R. Webb.)
stipulate to the rest of these items, and with that
in mind, I request a short recess for that purpose.
The Court: We will have a recess and you notify
the Clerk when you are ready to present your stipu-
lation.
Mr. Simpson: Now, your Honor, may I offer
in evidence Petitioner’s Exhibits 21, 22, 23, being
the day sheets for the French Cafe, for the vears
1944, 45 and 746, respectively; and 24 being the
day sheets of the French Cafe for the years 1944,
45 and 746 and ’47, respectively.
The Court: Do these purport to be the complete
set of sheets for each year?
Mr. Simpson: ‘They are not complete sets but
they are the only records that are available.
The Court: Myr. Gardner.
Mr. Gardner: No objection.
The Court: These exhibits will be admitted.
(The documents heretofore marked fer iden-
tification as Petitioner’s Exhibits Nos. 21, 22,
23, and 24, were received in evidence.)
The Court: There will be a recess, and when
Counsel notify the Clerk that their stipulation is
ready the Court will reconvene.
Mr. Simpson: Fine. Thank you. [314]
(Short recess.)
The Clerk: Recess until 10:00 o’clock tomorrow
morning.
Commissioner of Internal Revenue 925
(Testimony of Robert R. Webb.)
(Whereupon, at 4:00 o'clock p.m., the hearing
in the above-entitled matter was recessed until
10:00 o’clock a.m., Tuesday, July 1, 1958.)
Mr. Simpson: If your Honor please, we have
stipulated with respect to the additions and deduc-
tions of the daily sheets of the French Cafe, as to
what the witness Mr. Webb would testify to. That
is a stipulation of facts, B.
Off the record.
(Discussion off the record.)
The Court: The stipulation will be received.
This is a stipulation as to what the witness would
have testified to.
Mr. Simpson: With respect to the daily sheets
of the French Cafe, as it relates to additions and
deductions.
Also of stipulation of fact C, relating to the
personal living expenses of Mr. Rau for the vears
1942 to 1947.
Mr. Gardner: JI would like to say one word
about the stipulation of fact C.
It is clearly understood, I believe, that this stipu-
lation of fact C relating to the personal living ex-
penses is in addition to the expenses shown in the
original and the first stipulation that we have, show-
ing income tax payments.
Is that correct, sir?
Mr. Simpson: That is correct, ves.
The Court: It will be received. [818]
326 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
My. Simpson: If your Honor please, at this time
I would like to move for leave to amend the Peti-
tioner’s Exhibit 12, which is a photostat of Mr.
Webb’s bank account, which is now in evidence,
consists of 12 pages and covers the year 1947. I
have 36 additional sheets covering the period from
December 31, 1942, to December 7, 1945.
The Court: Suppose you offer that as a separate
exhibit.
Mr. Simpson: As a separate one, that would
have to be through My. Webb.
My. Gardner: J haven’t seen it yet, your Honor.
Might I ask if this is a complete record of all
of the years previous, 1942 to November 17, 1945?
Mr. Simpson: Well, in reply to Mr. Gardner’s
question, T can say by examination of these sheets
it does not purport to be a complete record up to
1947, which is beginning date for Exhibit 12, or for
the purpose of demonstrating Mr. Webb’s account
beginning in 1948, up to the end of 1945, be at-
tached to and made a part of Exhibit 12.
Mr. Gardner: I have no objection, your Honor.
The Court: I will admit the additional sheets,
but since 12 is already in, the Clerk will assign an-
other exhibit number for these additional sheets.
Mr. Simpson: All right. Thank you. [819]
The Clerk: Petitioner’s Exhibit No. 25.
(The document above referred to was marked
Petitioner’s Exhibit 25 for identification.)
Mr. Simpson: I believe that Mr. Webb was on
the stand when we finished last evening.
Commissioner of Internal Revenue 327
ROBERT R. WEBB
resumed the stand, having been previously duly
sworh, Was examined and testified further as fol-
lows:
Cross-Examination
(Continued )
Mr. Simpson: May we approach the bench, your
Honor?
(Discussion off the record.)
By Mr. Simpson:
Q. Mr. Webb Bee Ni Cs. sin:,
Q. Ishow you a group of checks, approximately
618 in number, on the French Cafe, in their ac-
count at the Bank of America for the year 1944,
and ask vou to thumb through the checks and tell
me if your signature appears as drawer on the
checks ? A. ‘One is Mr. Rau’s.
The Court: Are most of them yours?
The Witness: Yes, sir.
Q. (By Mz. Simpson): Mr. Webb, so that we
don’t take up too much time, I now ask you to look
at that group. I will withdraw the [320] one check
of Mr. W. F. Rau, and ask you to take another
look and state whether or not your signature ap-
pears on 617 checks?
A. Most of them are mine, but some are Mr.
Rau’s. There is Mr. Rau’s.
Mr. Gardner: If the Court please, I think we
could save time if this exhibit was going over, and
the checks of—checks contained in that bunch of
checks was removed by Counsel.
aya) Estate of Walier F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
Q. (By Mr. Simpson): Now, Mr. Webb, I will
ask you to go back over that and look at those I
have withdrawn.
A. You want me to pick out Mr. Rau’s?
The Court: Just one at a time.
Mr. Simpson: There are approximately 600
checks there now, Mr. Webb.
The Court: Did vou withdraw some of the
checks from the pile, Mr. Simpson?
Mr. Simpson: Yes, approximately 17 checks.
The Court: How many?
Mr. Simpson: Approximately 17 checks. 16 I
have counted. There ave approximately 600 checks
now remaining.
Q. (By Mr. Simpson): Mr. Webb, would you
lock through again?
The Court: Let the record show that Mr. Simp-
son is [3821] withdrawing a few more checks as the
witness is flipping through the pile.
The Witness: As far as I know, the rest of
them are all of my signature.
Mr. Simpson: Five additional checks were with-
drawn from the 16, making a total of 21 checks
withdrawn from the packet of about 618 checks.
Q. (By Mr. Simpson): Now, the remaining
checks there bear your signature on the French
Cafe?
A. As far as I know. I can’t see any others.
Q. That is for the year 1944, is it not, on the
French Cafe?
A. There is one for Mr. Rau.
Commussioner of Internal Revenue 329
(Testimony of Robert R. Webb.)
The Court: Let the record show that an addi-
tional check has since been withdrawn.
Mr. Simpson: A total of 22 checks now with-
drawn from 618.
The Court: Let the record also show that these
ehecks have not been gone over one by one by the
witness, but be has flipped through a rather large
pile of checks, with sufficient care, however, to
satisfy himself that most, if not all, of those remain-
ine were signed by him.
The Witness: Yes, sir.
Q. (By Myr. Simpson): [822] Now, you drew
the checks on the French Cafe for 1944 which you
just examined? A. Yes, sir.
The Court: Are you going to ask him before you
proceed to the other piles of checks what these
cheeks were drawn for, Mr. Simpson?
Mr. Simpson: Well, yes, as soon as I establish
that he has drawn these checks, then I will go back
over very briefly the purposes.
The Court: Suppose we clear up the matter of
this pile of checks, first.
Q. (By Mr. Simpson): Mr. Webb, in connec-
tion with the checks that you have just identified
on the French Cafe for 1944, would you examine
them in any way you would like, and state for the
record the purpose for which the checks were
drawn ?
A. Well, a good many of them are payroll
checks, or maybe supplies, payroll checks, supplies.
330 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
Q. Can you look at a check and tell me whether
or not it is for payroll?
A. This looks like a withholding tax. Somebody
else wrote this and paid to the order—I don’t know
what this is. It was handed me to sign. It looks like
a withholding tax.
Q. Now, let’s get a check out of there that is
for payroll. [323]
A. Payroll, okay. Here is a payroll check.
Q. Let the record show that the payroll check
just referred to by the witness is made, check is
made payable to Leon—do you know that name,
last name? A. H-i-d-a-l-g-o.
Q. In the amount of $29.60.
The Court: Mr. Webb, were you the one who
drew checks on the account of the French Cafe in its
day-to-day operations ?
The Witness: Yes, your. Honor
The Court: For the payment of expenses and
other charges that were incurred by the French
Cafe? A. Yes, your Honor.
The Court: Was there anyone else that drew
checks in a similar capacity on the account of the
French Cafe?
The Witness: The only one, only other one would
be Mr. Rau, the owner, himself.
The Court: Did you draw most of them?
The Witness: The majority of them; yes, sir.
Q. (By Mr. Simpson): They were drawn for all
purposes, including payroll operating expenses?
A. Yes, sir.
Commissioner of Internal Revenue 331
(Testimony of Robert R. Webb.)
Q. Of all kind in connection with the French
Cafe? A. Yes, sir. [3824]
Q. Now, that is something in addition to the
merely taking of the cash receipts from the French
Cafe now? A. Yes, sir.
Q. I believe your testimony is that you had noth-
ing to do with the French Cafe, except taking the
receipts. Now, your testimony is that you paid, drew
checks for various sources for that operation ?
A. Iam sorry. I forgot about the checks.
Q. Going through the same thing again, I will
show you another group of checks on the French
Cafe for 1945, they have not been counted, but they
appear to be 200 or 300 checks, a rough estimate.
The Court: These are for other years?
My. Simpson: This for *45.
The Court: Mr. Simpson
My. Simpson: 1945.
The Witness: Yes, stv.
Q. (By Mr. Simpson): Have you looked at
those ? ee Decide
Q. Have you satisfied yourself that this group
is for the same purpose that the group shown to
you for 1944, represent in the way of payments of
operating expenses of the French Cafe?
A. Some of these checks are by Mr. Bender, who
was [325] a partner of Mr. Rau in 1946, but the rest
of them look like all mine.
Q. With the exception of those few?
i A. Yes, sir.
Mr. Gardner: Did I understand Counsel to be
a2 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
referring to checks for the year 1945 in his question
to Mr. Webb?
Mr. Simpson: Yes, I did refer to 1945, and let
the record show that there is included in there, in-
advertently, some checks that have to do with 1946.
If your Honor please, these checks had been sepa-
rated by dates previously, and I can now see that
they have, for some reason or other, included with
other dates. I am not going to spend any more
time on it.
I think we have established that you did draw the
checks for these various purposes for the Mrench
Cafe for 1945, 1944, 1945 and 1946?
The Witness: Yes, sir.
Q. (By Mr. Simpson): You agree to that?
fey CS asit.
Mr. Gardner: Might I ask also in this question
Counsel has just put to the witness, referring to the
year 1946, are you including the French Cafe at the
time it became a partnership on May 6, 1946?
Mr. Simpson: Yes, I am. [326]
The Witness: Yes, sir.
Q. (By Mr. Simpson): And you drew checks
on that partnership of Rau and Bender in 1946, did
you not, Mr. Webb?
A. I believe I drew checks when Mr. Bender was
a partner. I couldn’t be positive.
Q. Did you also draw checks on the partnership
in which you were a partner in 1947 with Mr. Rau
and Mr. Bender?
A. I believe I had the authority to draw them. I
Commissioner of Internal Revenue 333
(Testimony of Robert R. Webb.)
think Mr. Bender drew most of them or Mi. Reed
was the
@. I asked you, Mr. Webb, if you drew the
checks.
Mr. Gardner: Jf the Court please, IT would like
to have Counsel instructed to let the witness answer.
Mr. Simpson: I want a responsive answer, Mt.
Gardner. I asked him if he drew the checks.
The Witness: tI am not sure.
Q. (By Mr. Simpson): Thank you. Mr. Webb,
I am going to show you a group of checks on the
Hrench Cafe in the Anglo, California National
Bank, bearing various dates in 1946, and ask you if
that is your signature as drawer of those checks?
me ‘What is,
Q. Just thumb through those.
A. Those are my checks, my signature [327]
Q. Would you state for the record whether or
not you see any checks dated subsequent to May 29
of 1946, the date on which the partnership between
Mr. Bender and Mr. Rau was formed ?
A. October, 1936—1946. October 31, 1946, a pay-
roll check, October 31, 1946.
The Court: What do these dates mean?
Mr. Simpson: Subsequent to the formation of
the partnership between Mr. Rau and Mr. Bender.
The Court: I understand that, but is the witness
reciting those dates to indicate that there were
checks made out by him on those dates?
My. Simpson: Yes.
The Court: Proceed.
334. Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
Q. (By Mr. Simpson): Mr. Webb, did you draw
checks subsequent to the time that Mr. Rau and Mr.
Bender formed a partnership with the French Cafe?
A. Yes, sir.
Q. Now, I show you a group of checks bearing
various dates in 1947, and ask if your signature ap-
pears on those checks?
A. Those are Mr. Bender’s on some of them;
most of them are my signature.
Q. And they are on the French Cafe for the year
1946? [328] A. 747.
Q. 747, I am sorry. And you were a partner in
that partnership, as well, in 1947?
A. Iwas not in the partnership at the time these
checks were written on the French Cafe.
Q. Now, that is not going to be clear for the
record. Would you identify the check and give the
date this check was drawn, cheek number?
A. Check No. 1290, drawn 6/19/47, paid to the
order of Al Neal, N-e-a-d or “‘l,’’ I don’t know, for
$59.10, signed by me.
@. Now, your explanation as to that check,
please, again.
A. I imagine that is a payroll check.
@. And you did not draw that check at the time
that there was a partnership in which you were a
partner on the French Cafe with Mr. Rau and Mr.
Bender?
A. The partnership of the French Cafe with Mr.
Bender and Mr. Rau was sometime in the summer
of 1947. The restaurant was opened for about, op-
Commissioner of Internal Revenue B20
(Testimony of Robert R. Webb.)
erated for about, mayhe, two weeks or a month, and
then it was closed down for remodeling.
©, Were you apatiner at that time, Mr. Webh?
A. IT wasa partner when we were at 1800 Chester
Avenue. [329]
@. Were vou a partner with Mr. Rau and Mr.
Bender on June 19, 1948, the date on which you drew
this check ?
A. Let’s see, June 19. Yes, sir.
Q. Mr. Webb, you have testified previously that
the deposits which you made in your bank account
at the Bank of America in Bakersfield in 1947 came
from savings, or from sale of war bonds. I ask you
now, is that the only bank account that you have?
A. No. Ihave, we had a bank account in Beverly,
J think the Beverly branch of Wilshire Boulevard.
My wife had it in her name.
Q. Did you have any other bank account, your-
self ? AON 0 jie
Q. In your name? A. Woe sir,
Q. You had no savings account in your name?
ee Notaag LhAt (Me) MoM sit.
Q. At what time did vou have your savings ac-
count?
A. All through my life I have had a small sav-
ings account. [ don’t recall, never amounted to very
mance:
Q. Did you have a savings account in 1942?
A. I don’t recall.
Q. Do you recall whether or not you had such
an account in 1943?
336 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
A. J don’t recall whether I had. [330]
@. 1944? AS INO, SUE,
Q. Or 1945? mo, Se.
). You do not recall?
A. No. I am sure I didn’t have one in 1945 or
1944.
®. You are sure you did not have one?
Mr. Webb, did you keep payroll books as man-
ager?
A. it signed the payrolls. I didn’t make out. the
checks, very few. I may have made out them ocea-
sionally. They are all usually made out by the book-
keeper and they were brought to me at the desk and
I would sign them.
Q. You would sign the check for the payroll?
A. Yes, sir.
@. But you never made any entries in the books
as to what an employee was to receive as wages?
ee NO, sir
Q. Did not. You only made out the checks after
someone gave you the information ?
A. Yes, sir.
Q. Do you know Phil Bender? A. Yestene
Q. What was Mr. Bender’s duties; was he an
employee of Mr. Rau’s [331]
He had been an employee; yes, six.
What were his duties?
Well, he was a chef and steward.
Jn what business?
In the French Cafe.
In the French Cafe? A. And——
OPrOoroa>r
Commissioner of Internal Revenue 337
(Testimony of Robert R. Webb.)
@. And was he the steward or chef for 1942
through 1947?
A. During those years he had worked there. He
probably worked there couple of times, but I don’t
remember the vears through °47 he was.
Q. Can you recall the amount of his salary in any
particular year from 1942 to 1946, when he became a
partner with Mr. Rau?
A. Well. I would be just guessing. I think about
$400 a month.
Q. $400 a month?
A. That is just a guess now.
Q. Now, Mr. Webb, do you recall that an exami-
nation had been made of Myr. Rau’s income tax re-
turns by revenue agent Mr. Walter Slatter; do you
recall such an examination ? A. No.
@. You do not. Did Mr. Slatter ever consult
with you?
A, “Not that I recall) no, sir. [332]
@. Do you know whether or not Mr. Rau paid
any additional income taxes as a result of an exam-
ination sometime in 1947? I do roi 10:
Q. Just a moment, your Honor.
Well then, it is your testimony that you never
saw Myr. Slatter? A. I don’t remember.
Q. You do not remember. You do not recall an
examination of Mr. Rau’s income tax returns for
1942, 1943 and 1944?
a il dems recall; nope
Q. Coming back to the placing of the money in
338 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
envelopes in the safe, did you see Mr. Rau open the
safe and take the envelopes out of the safe?
A. Usually Mr. Rau would ask me to get the
envelopes out for him. He will say, well, how much
money do we have, let’s get this money out and get
it in the bank, or for some other purpose, but he
may have gotten it out himself. He could have any
time, because the bank is right there, the safe is
right there; either he or I.
Q. But you did not see him take the money out
of the envelopes?
I don’t recall him taking it out; no, sir.
Never saw that? [333]
Yes, I took it out.
You took the money out of the envelopes?
Yes, sir.
Then you handed the money to Mr. Rau?
I don’t know whether I handed it to him or
not. He was right there at the desk when the money
would be there. [ would make the deposit or cash it.
Q. You took the envelopes out of the safe; did
you open the envelopes and take the money out and
give it to Mr. Rau?
A. I don’t remember handing it to him; no, sir.
The Court: Well then, in what fashion did you
make it available to him?
The Witness: J would take the money out of the
safe and put the money——
The Court: In his presence?
The Witness: Yes, sir.
POPrPOrS »
Commissioner of Internal Revenue 339
(Testimony of Robert R. Webb.)
The Court: And put it right where, on the desk
somewhere ?
The Witness: On the desk.
The Court: He was there?
The Witness: Yes, sir.
The Court: Would he take it from the desk ?
The Witness: He would have me put it in the
bank, or take the cash, himself. [834]
The Court: Well, were there occasions when he
took the money in your presence ?
The Witness: Yes, sir, your Honor.
The Court: Did that happen often?
The Witness: About once a month.
Q. (By Mr. Simpson): Now, when he took the
money in your presence, did he put it in his pocket?
A. Sometimes he would put it in his pocket; yes,
sir.
Q. And other times, what did he do with it?
A. He would have me put it in the bank, put it
in his personal account.
Q. Now, when he took the money in your pres-
ence, put it down on a table, or desk, he picked the
money up and handed it back to you on those occa-
sions when you deposited it in his personal account;
is that it? A. Yes, sir.
Q. On those occasions, when he did not hand the
cash or money back to you, he then put the money
in his pocket; is that correct, sir? ee Ves. cit,
Q. Did you know how much money was in the
envelope at the time you took it out of the safe?
A. Yes, sir.
340 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
Q. Now, state, if you will, on those occasions
when [335] the money was not given back to you for
purposes of depositing in his personal account, how
much did Mr. Rau put in his pocket in cash?
A. I don’t remember.
@. Would it be as much as a thousand dollars ?
A. It could be; yes, sir.
Q. Well, would it be $2,000?
A. It could be $2,000.
Q. I don’t want to carry on this ad infinitum,
could it be $4,000? A. I don’t remember that.
Q. Don’t remember that? A. No, sir.
Q. But you—it could be $2,000 at the end of a
month. Mr. Rau did not give you the money for the
purpose of depositing in his personal bank account,
he then had the money on his person; is that correct?
A. He might put the money in another envelope,
put it in the safe.
Q. He put the money back in the safe, after you
took it, the envelope out?
A. He could have, but I don’t recall just what,
exactly what happened in every occasion. All I know
is that he got the money or the bank, it was sent to
the bank.
The Court: When you say he could have, you
mean that [336] that happened once in a while or
that it happened sometimes ?
A. It happened practically every month, sir. It
could have happened in the middle of the month; he
could have come out and taken some money.
Q. (By Mr. Simpson): Mr. Webb, what I am
Commissioner of Internal Revenue 341
(Testimony of Robert R. Webb.)
trying to get from you is some testimony as to what
happened to the cash that was taken out of the en-
velopes in your presence by Mr. Rau, keeping in
mind specifically the occasions when he didn't give
the money back to vou for the purpose of putting it
in his personal bank account.
I want you to tell me whether or not he put the
cash in his pocket and then left the desk. Now did
he do that? A. He could have.
The Court: Did he?
The Witness: Well, yes, sir.
Q. (By Mr. Simpson): That would happen
more often than giving the money back to you for
the purpose of depositing in his bank or can you
state ?
I couldn't state that, sir. I don’t know.
Would it be 50-50?
I couldn’t state that.
- Well, can you give a guess as to how often
you [837] saw Mr. Rau put the cash in his pocket
when he didn’t give it to you to put in his personal
bank account ?
Mr. Gardner: If the Court please, I object to the
question, calling for a guess on the part of the
witness.
The Court: Sustained.
Q. (By Mr. Simpson): Mr. Webb, give the ap-
proximate number of times that you saw Mr. Rau
put the cash in his pocket.
A. I couldn’t give you approximate number of
times. I don’t remember.
Oror
342 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert. R. Webb.)
Q. Then tell me, the approximate number of
times that he gave you the cash to put in his per-
sonal account, now keeping in mind for the purpose
of that question, Mr. Rau, that there are 12 months
in a year, and 30 days, every 30 davs he came down
to the safe in your presence, took money out of an
envelope which you had previously put in there for
him and keep in mind for purposes of that question,
if you will, the number of times that he gave you the
cash to deposit in his bank account.
Mr. Gardner: If the Court please, I think the
question is rather vague. Does he relate to one year,
or does it relate to the entire period of time up to
August 7, 1947? I don’t know from the question.
I think that Counsel should be instructed to make
the question more specific. [838]
Q. (By Mr. Simpson): In 1942, would you
please state the number of times that Mr. Rau gave
you the cash to go down to the bank and deposit
in his personal bank account?
A. It would be at least once a month, maybe
more, but I couldn’t recall.
Q. That would mean then that he had no cash to
put in his pocket, if it was once a month he gave
you the money to put in the personal bank account?
A. He wouldn’t have it all in the personal ac-
count. He might take out, in the middle of the
month, for that matter, I don’t know just when, but
he might come out and take out $500, put it in his
pocket, or put in the bank, or he could have put it
in the—take it to the safety deposit box.
Commissioner of Internal Revenue 343
(Testimony of Robert R. Webb.)
Q. Well didn’t you go with him to the safety
deposit box ?
A. I made several trips with him to the safety
deposit box; yes, sir.
Q. Didn’t you go with him on every occasion
that he went to the safety deposit box ?
A. IJ couldn’t swear that I went on every oc¢ea-
sion.
The Court: Did you go on most occasions ?
The Witness: Yes, sir, your Honor. [339]
Q. (By Mr. Simpson): In 1948, please state the
number of times in a year that Mr. Rau gave you
eash for the purpose of depositing in his personal
bank account?
A. I don’t know; I don’t remember.
Q. In 1943, please state the number of occasions
that Mr. Rau gave you cash for the purpose of put-
ting it in his personal bank account ?
A. I don’t remember.
Q. In 1945, please state the number of occasions
that Mr. Rau gave you cash for the purpose of de-
positing it in his personal bank account?
A. I don’t remember.
Q. In 1946, please state the number of occasions
that Mr. Rau gave you the cash for the purpose of
depositing in his personal bank account?
A. I don’t remember.
Q. In 1947, please state the number of occasions
that Mr. Rau gave you cash for the purpose of de-
positing in his personal bank account?
A. I don’t remember.
The Court: But do you remember that you did
344. Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
deposit amounts that he gave you in each of those
years?
The Witness: Yes, your Honor.
The Court: And what is it that you don’t re-
member, the number of occasions? [340]
The Witness: Yes, sir.
Q. (By Mr. Simpson): Now, do you remember
the amount of cash that he gave you to put in the
personal bank account on these occasions ?
A. Ido not remember the amounts, no, sir.
Q. Can you approximate the amount of cash that
he gave you to deposit in his personal bank account?
A. Imight—he might give me a thousand dollars,
or he might give me $300, if it is 30 days; $750 if it
was 60 days, and put that all in his account. I don’t
remember exactly. He may have had more than that.
Q. Mr. Webb, I show you Petitioner’s Exhibit
11, being the personal bank book of Mr. Rau, m the
Bank of America; I believe you previously testified
that you made or took the cash on most of these oc-
casions for the purpose of depositing in that account
as reflected in that book; isn’t that true?
a) Yes sim
®. Directing your attention to the date of De-
cember 25, 1942, deposit of $2,450, and ask if you ean
recall that occasion on which you made that deposit?
A. No, I can’t recall it.
Q. Looking down further in the book, January 7,
1943, there is a deposit of $2,000 in the personal
bank [841] account of Mr. Rau, do you recall the
occasion when that deposit was made?
Commissioner of Internal Revenue 340
(Testimony of Robert R. Webb.)
A. No, sir, I don’t recall any of the occasions.
Q. Can vou look in this book and tell the Court
when you, if you made any of the deposits that you
see reflected in that account?
A. I made quite a few deposits, but I don’t recall
any specific one. I know I deposited most of his
money for him.
Q. If there was a large amount of cash in your
pocket at the time you went to the bank, would not
that be something that vou remember ?
A. Not particularly, no, because I was, I han-
dled quite a lot of cash for Mr. Rau.
Q. In other words, you had in your possession a
large amount of eash at all times?
A. Not at all times, but several times I had large
amounts of cash that I would go up to the bank and
either bring back or take to the bank, large amounts
of cash; yes, sir.
Q. Now, Mr. Webb, did anyone see you put the
cash in the envelopes when you put the envelopes in
the safe?
A. They may have, but there wasn’t any, I didn’t
ask anvbody to watch me put it in or anything like
that.
Q. Who else was there that could have observed
your [342] putting the cash in the envelopes?
A. Well, Mr. Rau could observe me, or Miss
Goldstein could, or bellboy could, or the other clerk
could. He is right there in the office, the safe.
Q. Would they know how much eash you put in
the envelope?
346 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
A. No. There is no reason why they should know;
WO, S11
@. Would they also see Mr. Rau take the money
out of the envelope, right there in the office, with all
these employees ?
A. They could have; yes, sir.
@. Well, were they there at the time Mr. Rau
took the money out of the envelope?
A. I don’t remember, maybe sometimes they
might have been, maybe not. I don’t remember.
@. Can you state whether or not they were there
when you put the cash in the envelope?
A. I don’t remember.
Q. If Mr. Rau did not give you the cash for the
purpose of depositing in his personal bank account,
and took the money out of the envelope in your
presence, as you have stated, he then had the money
on his person when you last saw him and the cash?
A. He might have had it on his person, or he
might [343] have put it in his own, in his safe for
himself.
Q. In what safe, Mr. Webb?
A. In the office.
Q. He would put it back in the safe, do you
mean ? A. He could have; yes, sir.
Q. Well, you were right there, did you see him
put it back in the safe?
A. Yes. Occasions I have seen him put the money
in the safe.
Q. And how often would that be; would that be a
Conmissioner of Internal Revenue 347
(Testimony of Robert R. Webb.)
general practice, let me ask you the question that
way ? mw. =~ es. Sit.
Q. That would be the general practice, that is,
that money would go back into the safe, except on
those occasions when he gave you the cash to put in
his bank account?
A. He might have put it in his pocket. He might
have sent me to the bank with it, or he might have
put it in the safe.
Q. Of course, there are many, many possibilities,
and [ am trying to rule out certain possibilities, Mr.
Webb, so that we can identify or establish rather,
exactly what happened to that cash in your presence
that vou have been testifying here for three days,
that you took that cash out so much money a day,
there was no question or hesitance about your testi-
mony in that regard. [8+] we Nes, sin,
Q. Now, I am going to try and find out from you
where it finally ended up, where it went, and you are
the man that can do it.
You gave him that cash or made it available to him
by putting it on a desk? C6 cli.
Q. On some oceasions he gave you that cash, you
knew how much was in the envelope, you have al-
ready stated that. A. Yes, sir.
Q. And you took it down and put it in his bank
account, personal account; is that correct, so far?
A. At times, not every month it wouldn’t happen.
Q. Well now, when it didn’t happen——
' A. He may have put
4
348 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
@. the cash was there, Mr. Webb, on the
table, what did Mr. Rau do with it then?
A. He might have put it in his pocket.
@. Well, did he put it in his pocket?
A. Sometimes.
Q. And on other times, what did he do with it?
A. He might have put it in the safe.
Q. Did he, did you see him put it back in the
safe?
A. I have seen him put it back in the safe; yes,
sir. [345]
Q. Right back again?
A. Maybe that, not that amount, some in his
pocket. I don’t recall just exactly how it happened.
Maybe all of it.
Q. When he left you on occasions, when he didn’t
put it back in, then is it safe to assume so far as you
are concerned, that it was on his person when you
last saw the cash, or knew of its disposition ?
A. I really didn’t pay much attention what he
did with the money after I gave it to him.
@. Well, please state how much attention you
paid to the cash when it came out of the safe; did
you count it? A. It was counted; yes, sir.
@. Now, it was counted 12 times a year, every
month ? A. Yes, sir.
@. Was it counted every day ?
A. Not every day. It wouldn’t be necessary to
count every day.
Q. Well, when you took $10 off——
A. I would put it in an envelope.
Commissioner of Internal Revenue 349
(Testimony of Robert R. Webb.)
Q. Put it in the safe; did vou know how much
was in that envelope at that time? A. Yes, sir.
Q. Could you look at that envelope on any [3846]
given day during that month and tell how much cash
was m that envelope? A. Yes, sir.
QO” You could?
A. Just by the number of days.
®. You counted every dav then, did you not?
A. I don’t know whether I counted every day. I
put it in the envelope every day. 1 knew how much
it was in there, because if it was the 10th of the
month, I knew there would be $100.
@. There was some money left over in that en-
velope ? A. There would be another envelope.
Q. Another envelope?
A. I had two envelopes with $10 a day in one
envelope, $25 a day in the other envelope. Anything
else that was taken out would be put in another
envelope, and marked on the envelope how much was
taken out, the amount, and the date. That would be
turned in to Mr. Rau. He might come up two days
later and take it all away, take it out; then we start
another envelope.
Q. If he took all that cash out, he did it when you
weren’t there then?
A. He could have; yes, sir.
©, Well) didthe
A. I don’t recall that; I don’t know. [347]
Q. Do you ever recall an occasion when you went
in in the end of the month, opened an envelope and
saw no money in it at all? eNO. dota
350 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
®. Well then, you had to count the money every
day then to be able to tell on any given day how
much money was in the envelope; didn’t you?
A. No, I didn’t have to count it every day.
@. Then how did you know how much was in
there on any given day then?
A. Well, the envelope I put $10 a day in, it was
the 10th of the month, I know there would be $100. I
might count it; there would be no necessity for
counting it, because he never touched those enve-
lopes.
@. Which ones did he not touch now?
A. He would never touch the one with the $10 a
day or $25 a day, that I recall.
@. Which ones did he touch?
A. He would touch, he might take the money out
of an envelope that was the $100, or might take $100
out on a Saturday. He might take that.
Q. Now, we have three different envelopes now?
A. At least three; yes, sir.
Q. You had at least three, you had one that had
$10 a day in it, one that had $25 a day in it, and a
third [348] envelope now that had $100 on Satur-
days and Sundays? A. Yes, sir.
Q. Is that it? A. Yes.
Q. Now
The Court: I thought you had testified as to four
envelopes; one on the $10 a day, one in which you
deposited the $10 a day from the French Cafe, and
a second one which you put $25 a day from the bar,
a third one in which you put the unusual amounts
Commissioner of Internal Revenue 301
(Testimony of Robert R. Webb.)
from the French Cafe—that is the amounts that
were taken on week ends, or on days when it was
busy, and a fourth one in which you put the unusual
amounts that vou took off from the bar.
Now, if I have misunderstood about you, about
these four envelopes, will you please make it straight
now.
The Witness: There is one envelope for the
coffee shop, French Cafe, $10 a day; one for the bar,
$25 a day; another envelope, if I took out $100 on
the week ends.
The Court: From what?
The Witness: From the restaurant or the French
Cafe.
The Court: Then the third envelope was for un-
usual amounts that came from either the French
Cafe or the bar?
The Witness: Yes, your Honor.
Q. (By Ma. Simpson): Well now, did vou know
how much was in the third [349] envelope contain-
ing the so-called unusual amounts taken off?
A. Yes, sir.
Q. And how often did you count the money that
was in that envelope?
A. I£I put any money in that envelope, I would
put the date and the amount on the envelope.
Q. So then, you knew each day how much was in
the envelope? A. Yes, sir.
Q. Now, if I understand you correctly, Mr. Rau
did not touch the envelope that had the $10 a day in
it?
ep2 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
A. As I recall, he never touched that envelope,
or the one with the $25 a day. He might have taken
out of the other envelope.
The Court: That is the third one?
The Witness: Yes, your Honor.
Q. (By Mr. Simpson): The third envelope?
A. Yes, sir.
The Court: Did you ever take moneys out of the
first two, that is the $10 a day envelope, or the $25
a day envelope at the end of the month and transfer
those aggregate amounts into the third envelope?
The Witness: That could have happened. I don’t
recall [350] just how. or the occasions.
Q. (By Mr. Simpson): If it did happen, Mr.
Webb, you would have to know it, though, wouldn’t
vou? A. He might take the three envelopes.
QO. i want you to answer the question: if it did
happen, where he took the money out of the first two
envelopes, containing the $10 a day and $25 a day,
and transferred that money into the third envelope,
you would know that, wouldn’t you, Mr. Webb?
A. Yes, sir.
Q. Now, if he did that, then you would of course
know it. Now, since you knew it at the end of the
month, was there an occasion when there was no cash
in the $10 envelope and no cash in the $25 envelope?
At the end of the month; yes, sir.
There would be no eash in it?
Thats rishi.
You recall that?
eee) Nee
Commissioner of Internal Revenue 353
(Testimony of Robert R. Webb.)
A. I recall it, that would be all taken out. We
would start new envelopes on the first of the month.
Q. Two new envelopes, though?
A. ‘Two new envelopes, ves.
Q. Now, all the money was in one envelope, the
third envelope? [351]
A. The third envelope we would take it all out.
He might have me take the whole amount of the
three envelopes and deposit them, or do most any-
thing else with them. I don’t recall.
Q. Well now, on that third envelope, could you
look at it and tell how much money was in there on
any given day? A. Qh, yes, sir.
Q. You could? A. Yes, sir.
Q. Now, you tell the court exactly how you could
tell on any given day the amount of cash that was
in that third envelope?
A. Because I would mark on the envelope the
amount and the date, and if Mr. Rau took any out,
he would cross it off, or tell me. Then I would
count it.
Q. Please state how you knew that he took any
money of the $10 envelope and out of the $25 enve-
lope, and transferred the contents of those two into
the third?
A. I didn’t say that he took it out of the $10
envelope or $25 envelope, the third envelope. He
might come down in the middle of the month and say
put this money im the bank, or put it in some other
private use; wouldn’t necesarily have to be the last
of the month on the third envelope. [352]
Q. Didn’t you just get through testifying that
354 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
he took money out of the $10 envelope and $25 enve-
lope and transferred it to the third?
A. At the end of the month he might put it al-
together, the three envelopes, and deposit it all in
the bank, or for some other purpose, which I
* wouldn’t know.
Q. Did that third envelope have a notation in
your handwriting as to the amount of money that
was in that third envelope? A. Yes, sir.
Q. Then was it not necessary for you to look in
the first and second envelopes to determine that
there was no cash in them that had been transferred
to the third envelope so that you could have an ac-
curate count of the money in the third envelope?
A. Well, as far as I know, there was never any-
thing taken out of the two envelopes during the
month.
Q. Never anything taken out of the first and
second envelopes ? A, Thats tight,
Q. During the month? A, Yes, sit
Q. Now, when the contents of the first and sec-
ond envelopes were transferred to the third enve-
lope, the contents of the first and second envelopes
transferred to [353] the third that is, did you count
the money at that time when it was transferred ?
A. At the end of the month, if there was any
money in the other envelope, the third envelope, it
would probably be put together, either deposited in
the bank, or Mr. Rau might take it for some other
use, put it in his own personal account, or for most
anything. I don’t know.
Conmissioner of Internal Revenue 300
(Testunony of Robert R. Webb.)
Q. When vou took the envelopes out to make the
eash available to him, then you took it out of the
third envelope?
A. Tf there was any money in the third envelope,
it was all taken out; yes, sir.
Q. And you put it on a table, the cash, and Mr.
Rau took part of it?
A. He might take part of it; he might not.
The Court: What table was this, and where was
the table?
The Witness: The front desk, vour Honor.
Mr. Simpson: At the front desk.
The Court: Js this a table behind the desk, or
was this the desk, itself, that you are referring to as
the table?
The Witness: Yes. We had a desk in the little,
desk in the back office, and usually he would, we
would count it back there, or if he had any deposits,
he had the amount [354] right on the deposit book,
which we knew that it was okay.
Q@. (By Mr. Simpson): What was the cash
doing out on the front desk then?
A. It could have happened in the front desk. We
had a desk to register on. Over here we had a little
desk for our room rack, which is enclosed. Could
have been counted there, could have been counted in
the back office on the desk.
Q. Well, I think you testified, Mr. Webb, that the
cash was out in the front, on the front desk?
A. Could have been the front desk, or the back
desk; I don’t remember.
356 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
Q. Well, this happened at least 72 times, can’t
you remember where it happened most of the time?
A. Usually in the front.
Q. Usually right out there in the front?
A. In back of the room clerks, in back of the
room rack; yes, sir.
Q. It didn’t happen
The Court: Would this be visible to anybody in
the lobby, to any strangers passing through the
lobby ?
The Witness: Yes. The whole office was visible
for anybody in the lobby. [355]
Q. (By Mr. Simpson): Then there was an office
in addition to the front desk where the cash was
placed when it was made available to Mr. Rau?
A. Idon’t quite get you, sir.
Q. In addition to the front desk, there was also
an office ?
A. It was just one office, but it was a little in the
rear of the office. We had the safe and another desk
and a couple of chairs, and a desk, and also some
files for records.
Q. Now, when Mr. Rau took part of the cash and
left, the last you knew of it then it was on his
person?
A. He may have put it, been on his person, or he
may have put it m the safe in his own envelope. His
own, he had a Jittle box.
@. There was another envelope?
A. In this big safe, there was one box that he
could lock with a little separate compartment.
Commissioner of Internal Revenue 307
(Testimony of Robert R. Webb.)
Oe gantie drawer, did it have a key?
A. He had a key; ves, sir.
®. Did vou have the key?
PeeeNot todthat; no, sir.
Q. Then at no time did you ever know how much
cash was in that little box?
A. No, I didn't. [856]
And that safe was kept in the front part of
the hee at the front desk?
A, It was in the lobby of the hotel.
Q. The lobby?
A. It was in the back of the room clerk's office.
Q. So at no time then did vou know how much
cash was in that drawer?
A. I don’t remember any time, no. I mav have,
Dut | don’t reeall it.
@. Did you see Mr. Rau put it in there, cash?
A. Oh, ves. He kept money in there; yes, sir.
©. You saw him put it im?
A. Probably did. I was around there all the
time.
Q. If he put it in there, did vou ever see him
take it out?
A. He had some money in there several times. I
don’t know how many times, but he would take
thousand dollar bills, we would go down to the
Anglo Bank and he would put it in the safety de-
posit box.
Q. Where did he have the thousand dollar bills?
A. They would be in the safe.
Q. Do you know how they got in the safe?
358 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
A. He would put it out in the safe. If I went to
the bank and got two thousand dollar bills or four
one thousand dollar bills, I would bring it back to
him, and [357] he would take the money and put it
Miners Le:
Q@. When you got the one thousand dollar bills
from the bank, did they make a record of it?
A. Did the bank make a record?
Q. Yes. A. I wouldn’t know.
Q. Did this occur in 1942, the getting of these
thousand dollar bills?
A. I don’t believe so. It seemed to me it was
later on, but it could have been.
Q. How much later, now, Mr. Webb?
A. I don’t know. It was during the war years,
all I can recall, or after the war.
Q. During the war years? A. Yes.
Q. Now, when you went down to the bank to get
a thousand dollar bill, or four one thousand dollar
bills, did you just put four thousand in cash in the,
to the teller, hand you four one thousand dollar bills
right at that moment, sir?
A. If it was four thousand, he would hand it to
me; yes, sir.
Q. He did. Did he make any record of the serial
numbers on the thousand dollar bills on those oc-
easions?
A. The bank may have. I never made any record,
no. [358]
Q. Did you see the teller make a record?
Commissioner of Internal Revenue 309
(Testimony of Robert R. Webb.)
A. I don’t reall. I didn’t pay any attention to
what the teller was doing.
Q. Did he ask you your name when you got the
thousand dollar bills?
A. No. Most of the tellers knew who I was. I
worked for Mr. Rau.
Q. So, for their records of getting a thousand
dolar bill, they didn’t make anv notation as to
A They may have, but I wouldn’t know.
). You don’t know that?
A. No. I don’t pay any attention to that.
Q. Mr. Webb, do you know Jack Longway ?
A
Q
Wes oi
. Have vou ever been in business with him?
ANS ING sin
Q. Never been in business with him?
A. No, sir.
@. Have you ever been in a mine deal of any
kind, mining deal, mining operation ?
A. Not that I recall, no.
Q. Do you have any present business connections
with Mr. Longway ? A. No, si®
Q. How well do you know Mr. Longway? [359]
A. Well, I used to know him quite well. He was
in the service, when he came out I haven’t seen Mr.
Longway, probably in, maybe five years. I don’t—
maybe longer than that.
Q. He was in the service until when?
A. I believe he was in the Navy during the war,
part of the war, anyway.
Q. What was his rank in the Navy?
360 Estate of Walter F. Rau, Sr., ete., vs.
(Testimony of Robert R. Webb.)
A. I think when he came out he was—I don’t
know whether he was Chief Petty Officer. I knew he
was Petty Officer.
Q. He was a Petty Officer?
A. He may have been a Chief Petty Officer. I
don’t recall.
Q. Do you recall the year that he left the Navy?
A. No, sir.
Q. Do you have any present business associations
with Miss Rose Goldstein? A Novem
Have you ever had? A. No, sir.
Did you ever work with Miss Rose Goldstein ?
Q
Q
pew es. sir.
@. For—Mr. Webb, I mean for Mr. Rau, I am
PrVs A. Yes, sir. [860]
&. She was an employee of Mr. Rau?
A. She was employed, I think, part-time by Mr.
Rau.
@. Part-time. Was Miss Goldstein married at
that time?
4. I don’t—Miss Goldstein was married to Mr.
Longway, but I don’t recall the year or the date, or
what just exactly what it was. I think it was after
Chena:
@. You don’t recall the year? A. No.
Q. In which Miss Goldstein married Mr. Long-
way?
A. We always called her Miss Goldstein or Rose.
Q. Do you know whether she goes under both
names, that is Miss Rose Goldstein, and also Mrs.
Jack Longway ?
Commissioner of Internal Revenue 361
(Testimony of Robert R. Webb.)
A. I beheve she may have her business name as
Miss Goldstein, but I haven’t seen Miss Goldstein
until T saw her down here, within I guess a couple
of years, and that was at least two years.
Q. Been at least two years since you have seen
her?
A. Until I saw Miss Goldstein at the courtroom
here.
Q. At the time you made the entries on the daily
sheets of the French Cafe, you knew, did you not, at
the time you made them, that they were false?
A. Yes, sir. [361]
@. And you made them every day for 365 days a
year, except on those occasions that you were not
there? A. Yes, six.
Q. And on those occasions, the entries, if any,
were made by whom?
A. Well, they probably were made by Miss Gold-
Stein.
Q. By Miss Goldstein. Would you please explain,
if you will, please, your account of making a record
of these false entries for each of the years 1942
through 1947, to 1947, inclusive ?
A. I don’t quite understand.
Q. What was your reason in making these rec-
ords as you have testified to, in connection with the
daily sheets of the French Cafe?
A. I was instructed by Mr. Rau.
Q. Now, since you were instructed by Mr. Rau,
you felt that there was no alternative open to you
but to falsify the records?
362 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
A. No, I could have quit.
@. You could have quit?
A. Or I could have gone and informed on him, I
suppose.
Q. Have you informed on him?
A. No, sir. I never did inform on him; no, sir.
Q. Well, don’t you think you should have? [362]
A. Probably should, ves. But I just didn’t, did
not inform on him.
Q. You are quite certain of that?
A. Iam positive of it.
Q. Positive of that? A. Yes, sir.
Q. Now, every day that you wrote down that
false entry, you knew that it was false. Please ex-
plain how you were able to consent to that false act
of cheating your Government knowingly.
A. Well, I didn’t realize [ was cheating the Gov-
ernment, myself. I thought that was up to Mr. Rau.
IT was just following his instructions. I knew it was
wrong, but at the time I didn’t realize that I had
anything to do with how he made out his income tax,
or just what he did.
@. So now your explanation is, if I understand
you correctly, if I am wrong———
A. My explanation is that I did not inform, or
I did not have anything to do with it.
Q. J want to come back to these entries that you
made every day, these records. Did Mr. Rau instruct
you to make the records that we have here in evi-
dence ?
Commissioner of Internal Revenwe 363
(Testimony of Robert R. Webb.)
A. He instructed me about the $10 a day, and the
$25 a day; yes, sir. And. [363]
Q. Did he instruct you to make a record of that,
as we have seen here in evidence on the daily sheets
of the French Cafe? As a matter of fact, you have
a photostat Respondent’s Exhibit M, right before
you of those daily sheets showing the amounts taken
off each day.
Did he instruct you to make that entry showing
$10 taken off that day? A. Yes, sir.
Q. He told you to keep a record of his cheating?
A. No, he didn’t tell me to keep a record of it;
no, sir. | never new these were in existence. As far
as my part of it, I just turned these over to the
bookkeeper.
Q. You did not know that the
A. I wasn’t even interested whether they were,
or anything about it. I just turned them over, after
he got through with it, he would consult with Miss
Goldstein, practically every day.
Q. You didn’t know anything about the daily
sheets of the French Cafe reflecting the $10?
A. Yes, six.
Q. Then I ask you again, did Mr. Rau tell you
to make the entry on the daily sheets showing that
the $10 was taken off that day?
A. No. I don’t recall him telling me how to do it.
Q. Well then, it was your voluntary act of re-
cording [364] it all on your own to demonstrate the
fraud against your Government, without any in-
364 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
structions from Mr. Rau to make the entry of his
cheating?
A. The reason I made the entry, so Mr. Rau
could see exactly what it was.
Q. Well, he knew, didn’t he?
A. He could tear it up after I got through with
it. I don’t care.
Q. Well, he told you, Mr. Webb, to take it off
according to your testimony, he already knew. Now,
tell me why you kept the record voluntarily on a
daily basis, showing the amount taken off on the
French Cafe? A. The minute I was
Mr. Gardner: If the Court please, the witness
has answered that question twice before, and I think
it is now becoming just an argument between Coun-
sel and the witness. I object to the question.
The Court: Were these sheets turned over to him
every day; did he see them?
The Witness: I imagine he saw them every day,
sir, every day he was downstairs, or if he was in his
room, they would be taken up to his room and Miss
Goldstein, the bookkeeper, would get it after we got
through with it.
The Court: Well, these sheets were taken up to
his room on oceasion? [365]
The Witness: On occasion, yes, sir.
The Court: And on oceasions, were given to him
in some other fashion?
The Witness: Just the way it is here.
The Court: With your handwriting at the bottom
showing the amount taken off?
Commissioner of Internal Revenue 369
(Testimony of Robert R. Webb.)
The Witness: Yes, sit.
Me Geurt: So, this was a practice you werecn-
gaged in with his knowledge and consent?
The Witness: Yes, sir, your Honor.
@. (By Mr. Simpson): So then in efiect Afr.
Rau told you to continue the practice of demonstrat-
ing and establishing his cheating, be liked it?
A. Evidently.
Q. Is that it, he definitely wanted you to keep
that reeord after he saw it, he said ‘‘This is fine,
keep it day after day’’?
A. He didn’t tell me to keep any records. I didn’t
keep any records.
@. You didn’t keep any records?
A. I didn’t know what happened to this after I
got through with it. First time I have seen these
sheets since I worked for him.
Q. But you put the figures down on there, [366]
didn’t von? A. Yes, I did.
Q. You have testified 1t is in your handwriting ?
A. Yes, sir.
. You made the deductions ?
A. That is right.
Q. Now, you took them upstairs to his room, and
showed it to him. He says, ‘‘Well done, keep it up;”’
is that it? A. He didn’t say anything.
Q. He didn’t say anything after you showed it
to him. You said, ‘‘Here, Mr. Rau, I have a perfect
record of your cheating.”’
Mr. Gardner: If the Court please, there has heen
no such testimony as ‘“‘Here Mr. Rau, here is a per-
366 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
fect record of your cheating,’ or anything like that.
He is trying to put words in the witness’ mouth, and
it is arguing.
The Court: It is cross-examination, but it is, I
think, it is unfair. Proceed.
Mr. Simpson: Perhaps, your Honor
The Court: I think you were, you are taking
hberties with his testimony, when you undertake to
characterize it, as you do.
Mr. Simpson: All right. Then I will cover it this
way then. [367]
Q. (By Mr. Simpson): You took the records up
to his room, did you?
A. On occasions. Mr. Rau was, sometimes he
would stay in late, maybe I wouldn’t—at times I
wouldn’t know whether he had been down at all that
day.
@. I have it down here, I made a note. We will
go back and get the reporter to read it.
The books were taken up to his room, to Mr. Rau’s
room.
A. There was occasions when they were; yes, sir.
Q. You took them up then?
A. On occasions, yes, sir.
Q. Well now, after you made the entries on
those daily sheets, you said you never saw them
again? A. They were given to Miss Goldstein.
Q. All right. Now——
fe this sheet———
Q. What did you do, did you give them to Miss
Commissioner of Internal Revenue O67
(Testimony of Robert R. Webb.)
Goldstein after vou made the entries, or did you take
them upstairs and show them to Mr. Rau?
A. I, if I showed it to Mr. Rau, I would have to
give it to Miss Goldstein; otherwise, she wouldn't
have, couldn’t have gotten it.
The Court: Who got them first?
The Witness: Mr. Rau. [868]
The Court: Was that on most occasions?
The Witness: Yes, sir.
The Court: Then they ultimately wound up in
Miss Goldstein’s hands?
The Witness: Yes, sir.
Q. (By Myr. Simpson): Now, you showed them
to Mr. Rau first, so he saw that you were keeping
a record of his cheating. When you handed it to
him, what, if anything, did he say when he saw that
perfect record that you had made?
A. He was interested in how much money, what
the receipts were and what the pay outs were, and
there was nothing said about that, as I remember.
Q. Well, couldn’t you have shown him another
record showing him what the receipts were, the daily
records that you kept, they were in evidence for the
bar and the cafe, couldn’t you have shown him that 2?
Paes cond.
Q. Well then, why is he interested in the daily
sheets of the French Cafe?
A. Naturally, Mr. Rau would like to see what
was taken in in the French Cafe and in the bar.
Q. Well, I thought that was reflected
368 E'state of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
A. It wasn’t one day that he didn’t see the whole
record. [369 ]
Q. I thought that you kept a perfect record of
that in these date books, showing both operations,
the bar and the cafe? Let’s just take Respondent’s
Exhibit O, just any date. Here is Wednesday, July 7.
Bee Phat is sien:
@. <And that is for 1943, the receipts for the bar
$256.07, for the cafe $383.09. Now, if he was inter-
ested in receipts, couldn’t you have shown him that?
A. That would not give him a true picture of the
receipts; the reason I didn’t show him that.
@. Wouldn’t give him a true picture of the re-
ceipts ?
A. No. If I showed him $256.07, he wouldn’t
know what that meant.
Q. He wouldn’t know that meant receipts from
the bar, if you told him?
A. I could tell him that, but he wouldn’t, natu-
rally he would want to see what the, see the tapes
and the pay outs and everything.
@. Oh, he audited everything after you finished ?
A. He would want to look at them, see what it
was.
@. Did he add them up?
A. I don’t know whether he added them up. I
gave it to him.
Q. You gave him all those tapes?
A. Gave him the tape, and I would write on
it— [3870] Well, this record right here, I would give
it to him, take it right
Commissioner of Internal Revenue 369
(Testimony of Robert R. Webb.)
ie *@ourt: By this recofd mght here, you are
referring to Extbit M?
The Witness: Yes, your Honor.
Q. (By Mr. Simpson): Now, he had the tapes,
you gare him the tapes; what did they show to him?
A. The tapes showed him the total amount of
receipts for the day.
®. For the day.
The Court: You mean actual receipts?
The Witness: Actual receipts; yes, your Honor.
Q. (By Mr. Simpson): Then how did you show
him the pay outs?
A. Well, the restaurant, here was the pay outs.
If there is anything paid out in the bar, practically
everything in the bar was paid by check. There was
very little pay out, just a matter of little incidentals
like a box of limes, or ice, or something like that.
That would be deducted from the total receipts.
The Court: That is the bar?
The Witness: Yes, sir.
The Court: What about the French Cafe?
The Witness: The French Cafe was all on
here. [871]
The Court: On here, you are referring to what?
The Witness: The paid outs.
The Court: You are referring to, again to the
sheets on Exhibit M, which is before you?
The Witness: Yes, sir.
The Court: There will be a short recess.
(Short recess. )
370 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
Q. (By Mr. Simpson): Mr. Webb, when you
took the daily sheets of the French Cafe up to Mr.
Rau, did you also take, at that time, the tapes?
ee Cs esiik:
@). Did vou take any cancelled checks?
A. Any eancelled checks?
®. Yes. A. Not that I recall.
@. Did you take any journal rocords?
A. No, sir.
Q. Take a general ledger? A. No sin
Q).
Now, exactly what did you take up to Mr.
Rau’s room after you made the entries on the daily
sheets for the French Cafe?
A. Just the cash sheets from the French Cafe,
with the tapes. [372]
Q. With the tapes. Did you leave the tapes in
his room? A. Yes, sir.
Q. Did you leave the daily sheets in his room?
A. I don’t believe I left this daily sheet in his
room. I would bring it down and either give it to
Miss Goldstein, or put it where she could pick it up.
Q. But you made certain that Mr. Rau saw the
amount taken off, according to your records?
A. It would be given just exactly the way it is
here; yes, sir.
Q. He knew that you were keeping this detailed
account of the falsification of the receipts ?
A. Yes, sir.
Q. He knew that. Now, did he tell you to eon-
tinue that practice ? A. Yes, sir.
Q. So from that time forward, by the way, let’s
Commissioner of Internal Revenue 371
(Testimony of Robert R. Webb.)
establish the first time that Mr. Rau knew that you
were keeping this detailed account of falsifying the
records. A. It would be sometime in 1942.
@. Sometime in 1942? A. Or prior to that.
Q. Prior to 1942 he knew that you were keeping
that record of the cheating? [373]
A. I did not keep the records. I just gave it to
him and that was all. He knew that I took off that
much money.
Q. Now, at the bar, I am not sure that I under-
stand your testimony. I don’t want to have any mis-
takes about it. As to the expenses that were paid
at the bar, paid outs, you said he was interested in
that, too?
A. The pay outs in the bar were practically all
by check, with the exception of ice and incidentals.
Q. So that you would have cash pay outs at the
bar in small amounts? A. Yes, sir.
Q. Now, when you had the other expenses at the
bar, you said they were paid by check and did you
make the checks payable to the supplier?
A. Yes, sir.
Q. You wrote the check out to the supplier’s
name? iN, GRY Sie
Q At the bar. Mr. Webb, I have counted these
checks personally. I think that we can safely say
there are 159 checks, the Southern Wine and Liquor
Company for the year 1944. I ask you to take a look
at those checks, please, and tell me if your signature
appears thereon as the drawer of these checks,
please? [374]
372 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
A. Yes, sir, all but two. I think Mr. Rau’s name
is on them.
Mr. Gardner: Would you speak up, please?
Mr. Simpson: So the Reporter ean get it.
The Witness: I think I saw one for Mr. Rau in
here. There it is.
Q. (By Mr. Simpson): Is that Mr. Rau’s sig-
nature? A. Yes; it is.
Q. Here is another one with Mr. Rau’s signa-
ture, check No. 79, dated March 18, 1944; is that
Mr. Rau’s signature ? A. Yes, sif.
Q. The other one you just identified as Mr.
Rau’s signature, check No. 110, dated April 1, 1944,
on the Southern Wine and Liquor Company ?
A, Wes, “sik:
Q. Both of those checks. I ask vou again to look
at this group of checks now, totaling 157, run
through them, 1f you will, and tell me the name, if
any, of the payee of the eheck?
A. I don’t see any payees on here.
Q. Tins, the checks were all made payable to
eash ? A. Well, that is right.
Q. Can you, by looking at those checks, explain
the [875] purpose for which they were drawn ?
A. You would have to get the stubs. I can’t
explain it; no, sir.
@. In other words, if you were furnished with
the stubs, you could explain these checks that are
drawn to cash?
A. If I could look at the stubs, yes.
Commissioner of Internal Revenue td
(Testimony of Robert R. Webb.)
Q. Let’s see if I can get the stubs for you of
those checks.
Would you mark this, please, as Petitioner’s Ex-
hibit next in order?
The Clerk: Petitioner’s Exhibit 26 marked for
identification.
(The document above referred to was marked
Petitioner’s Exhibit No. 26 for identification.)
Q. (By Mr. Simpson): Mr. Webb, I hand you
Petitioner’s Exhibit 26 for identification, being
eheek stub, Southern Wine and Liquor Company,
and direct your attention to check stub 260, and
ask if that is your handwriting? A. Itis.
Q. Now, the notation on that check stub is to
eash ? Ae Chet is rire,
Q. For supphes. Now, I ask you to look at [376]
the cancelled check, itself, No. 260, on June 2, 1944,
on the Southern Wine and Liquor Company, paid
order to the—pavable of cash in the amount of
$8.20, being the amount noted on the check stub?
A. Yes, sir.
@. And ask you now to tell, or state who the
supplier was who received the $8.20?
A. Well, the only explanation I have is the same
eondition as was in the I*rench Cafe, would have
me make out a check for the supphes that were paid
out that day.
Q. Did you go upstairs and ask permission to
draw this check to cash, check No. 260 for $8.20 on
O74. Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
June 2, 1944, and get permission to draw that check
from Mr. Rau?
A. He would tell me to draw a cheek for sup-
plies, not for every—not that one for every day,
for any supplies paid out that would amount to,
maybe ice, and little incidentals, that were paid out
that day.
I would deduct that from the total receipts and
he would see it on his statement.
Q. Then instead of paying the incidentals out
of the cash register for ice and few little things
like that, you drew a check for that?
A. It was paid cash from the register, but that
amount then would be made, a check made out for
that amount and deducted from the total.
Q. And please explain the purpose of following
that [877] practice of paying the cash out of the
eash register, and then drawing the check to cash
in that amount of money?
A. The bartender would pay it out in cash. He
would give me the tickets for ice, or whatever it was.
I would take the vouchers to Mr. Rau every day,
also with a tape and the amount of the receipts,
what each bartender had taken in, also the ticket,
the cash register drew, with the amount that each
bartender had taken in. And deduct the $8.20 as
supplies.
Q. Yes. Now, how did you determine that you
should draw a check for $8.20 for supplies on that
day?
A. Well, that was evidently the amount of cash
Commissioner of Internal Revenue oto
(Testimony of Robert R. Webb.)
paid out from the bar. We paid for limes, lemons,
little odds and ends, ice, every day.
Q. rom whom did you get that information?
Mr. Gardner: If the Court please
The Witness: From the vouchers in the bar.
Mr. Gardner: If the Court please, he has an-
swered that same thing three times by now, and
this is just becoming repetition after repetition.
I object to the question at this time, going into
the same thing over and over and over again.
The Court: It is repetitious.
Mr. Simpson: ‘To a certain extent perhaps, but
not entirely so. This witness testified that he drew
cheeks [878] to the suppliers.
The Court: He didn’t say to the suppliers; he
said for supplies.
Mr. Simpson: But I asked him also if he drew
check to the suppliers for the merchandise that was
delivered, and he said, yes. Now, I want to find out
whether or not he also took this information to Mr.
Rau.
The Court: Proceed.
The Witness: The bartender, the bartender——
The Court: Let the witness complete his answer.
The Witness: The bartender, if he paid out $3
for ice, he would have a voucher in the cash regis-
ter, what he paid out. Or any other item he paid out.
IT would get the vouchers with the cash, take the
vouchers up to Mr. Rau with all the other details
and if it amounted to $8.20, T would make the check
out for $8.20
376 Estate of Walter F’. Rau, Sv., etc., vs.
(Testimony of Robert R. Webb.)
He could check over this book every day, any
time. He had it right there in front of him.
The Court: This book was what?
Mr. Simpson: Check stub book, Petitioner’s Ex-
hibit for identification 26.
I will offer this into evidence at this time, your
Honor, so that there won’t be any——
My. Gardner: I didn’t understand that that had
heen [379] marked, your Honor.
Mr. Simpson: Yes.
Mr. Gardner: No objection, your Honor.
The Court: Admitted.
(The document heretofore marked for iden-
tification as Petitioner’s Exhibit No. 26, was
received in evidence.)
Mr. Simpson: Now, what I wanted to get to from
Mr. Webb, was that vou got the permission from
Mr. Rau to write these checks, that we are talking
about, demonstrated by the check stub for the pay-
ment of supplies at the bar.
The Witness: Yes, sir.
Q. (By Mr. Simpson): And he knew that?
A. He saw that every day; yes, sir.
Q. Every day?
A. Every day he was there; yes, sir.
Q. Did you take the vouchers themselves up to
him? A. “Yes, sir.
Q. There might be half a dozen, a total, that
might make the total of $8.20? A. Yes, sir.
Q. He looked them over? A. Wes) sie
Comnussioner of Internal Revenie 377
(Testimony of Robert R. Webb.)
Q. And then told you to draw the check to cash?
A. He didn’t tell me every day. He told me when
we [380] started to do that, and I followed the
customary:
Q. He had the tapes in front of him, also?
Nee CS:
Q. And the daily sheets from the French Cafe?
A. Yes, sir.
@. Now, we established that you took those tapes
up to him, the vouchers, and he told you to draw a
check for that?
He has daily receipts of the French Cafe, showed
those to him, and he made no observation or com-
ment when you made him—that you kept the record
in the amount not reported as receipts?
A. No, no observation.
Q. And vou followed that same practice in 1945,
did you, Mr. Webb? A. Yes, sir.
Q. 1944? a Yesrsine
Q. 1945? AP Wesecim
Q. And 1946? Aw Yes, six:
Q. And 1947? A. Yes, sir.
Q. And at no time did he make any comment
about the [381] record that you had made in the
daily sheets, showing the amount falsified ?
A. Well, we would discuss business and discuss
a lot of things, probably, about what was taken in
and everything; yes.
Q. It did not occur to you at all to tell him that
that was something he shouldn’t do, that he would
be in trouble with his Government? A. Yes.
378 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
Q. Did you feel that you might be in trouble
with the Government, aiding and abetting in that?
A. Well, at the time it didn’t really occur to me.
I didn’t think I was responsible for it, but I under-
stand now that I am.
Q. You understand now that you are respon-
sible ? A. Yes, sir.
Q. Has any action been taken against you on
this ? A. No, sir.
Q. In connection with your acts?
ee No, Sim
Q. No, six.
T have no further questions, your Honor.
Redirect Examination
By Mr. Gardner:
Q. Mr. Webb, referring to Exhibit 20, under
date [882] of December 16, 1943, would you refer
to that page and state whether or not your hand-
writing appears at the bottom of that page?
A. That is my handwriting.
Q. And referring now specifically to the figure
4720, could you tell us what that figure represents ?
A. It represents supplies.
Q. Supplies? A. Yes, sir.
Q. Is that the amount that you would write a
eheck for, to cash? Al Wes, sir:
Q. That vou previously testified to in explaining
these transactions; is that correct, sir?
A. That is correct.
Commissioner of Internal Revenue 379
(Testimony of Robert R. Webb.)
Q. And I would like to have this marked as Re-
spondent’s next in order, please.
The Clerk: Respondent’s Exhibit T marked
for identification.
(The document above referred to was marked
Respondent’s Exhibit T for identification.)
Mr. Simpson: May I see that, Mr. Gardner,
please ?
Mr. Gardner: Yes, exeuse me.
Q. (By Mr. Gardner): Mr. Webb, I hand you
what has been marked [383] Exhibit T for identifi-
eation, and ask whether or not you can identify this
book? A. Yes, sir.
Q. What is that book, sir?
A. That is the check book of the French Cafe.
Q. Is it the check book, or does it have only the
check stubs? A. Check stubs.
Q. For the French Cafe. And for what numbers
do you have in there, sir?
A. From No. 3201 to 3397.
@. And that covers a period, does it not, of
approximately December 15 of 1948 to January 6
of 1944; is that correct, sir? A. Yes, sir.
Q. Now, referring to check stub No. 3242, under
date of December 17, 1948, would vou state whether
or not your handwriting appears on that check
stub, sir? A. Yes, sir.
Q. And what did you write on that check stub?
A. Wrote cash to cash supplies, $47.20.
Q. Is that the same amount that is shown on
380 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
Exhibit 20, sir, under date of December 16, 1943,
referring to the bottom of the page where you put
in your summary of the day’s receipts? [3884]
A. That is the same amount; yes, sir.
Q. This is the amount that you previously testi-
fied to, that you prepared a check to cash and
marked it supplies; is that correct, sir?
A. Yas, sir.
Mr. Simpson: If your Honor please, I don’t
know what the purpose of this questioning is, be-
eause I think that our stipulation has covered it,
and I think Mr. Gardner is going to go back, prac-
tically everything that we agreed to; isn’t that so,
Mr. Gardner?
Mr. Gardner: That is not my intention, your
Honor. I intend to ask one or two instances, and
ask if this was the practice throughout the proceed-
ni on
The Court: Proceed.
Mr. Gardner: Now, at this time, I would like to
offer in evidence Respondent’s Exhibit T.
Mr. Simpson: No objection.
The Court: Admitted.
(The document heretofore marked as Re-
spondent’s Exhibit T for identification, was re-
ceived in evidence.)
Q. (By Mr. Gardner) This is Exhibit T, Mr.
Webb, referring to the daily sheets for the year
1944, that are in evidence as Exhibit 21, going to
Commissioner of Internal Revenue 38 lL
(Testimony of Robert R. Webb.)
the sheet for January 5, 1944, do you see your hand-
writing at the bottom of that page, sir? [385]
A. This is all my handwriting, this right-hand
side of the page.
The Court: Right-hand side at the bottom?
The Witness: At the bottom.
Q. (By Mr. Gardner): Right-hand side at the
bottom ? A. Yes, sir.
Q. Now, there is a figure there, sir, in the
amount of $62.30, would you state what that figure
ie Skee A. That was for supplies.
Q. For supphes. Did you do anything else in
connection with that figure, did you write a check
in that amount ?
A. I wrote a check in the amount of $62.30 and
marked it supphes.
Q. Now, referring to Exhibit T, under date of
January 6, 1944, check stub No. 3394, does your
handwriting appear thereon?
A. That is all my handwriting.
Q. That is all your handwriting. What does that
stub say, sir?
A. It says 11/6/1944, cash, supphes, $62.30.
Q. Now, Mr. Webb, in order to save time, would
you state now whether or not this same practice
continued throughout the vear 1944? [386]
A. Yes, sir.
Q. Throughout the year 1945?
A. Mes asin.
Q. Throughout the year 1946?
A. Not all through the year 1946.
382 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
Q. Up until what date, sir?
A. Well, up until—I am not sure of the month.
Q. There was a partnership formed in 1946?
A. There was a partnership formed.
Q. Up until that partnership was formed, you
did that same series of acts? A. Yes sue
Q. Relating to the drawing of check to supplies?
As Yes, ‘sir.
@. And recording
The Court: Check to cash.
Mr. Gardner: Excuse me, check to cash.
The Witness: Yes, sir.
Q. (By Mr. Gardner): And marking it for
supphes and recording
A. Yes, sir.
©. And recording it on that daily sheet of the
French Cafe? Aw Yes, sue
@. Now, did that continue throughout the year
1943, [387] also, sir? A. Yes, sir.
Q. Throughout the year 1942?
i Yes, Sir.
Q. At least when you started this practice in
19422 A. Yes, sir.
The Court: Now, when you cashed such a check,
what did you do with the proceeds of it, that you
received ?
A. The proceeds were added onto the receipts
for the bank. If the receipts were $300 and I wrote
a check out for $62.30, I would make it $362.30, to
deposit in the bank.
Commissioner of Internal Revenue 383
(Testimony of Robert R. Webb.)
The Court: You would add them then to the re-
ecipts for the particular day of the French Cafe?
A. Yes, your Honor.
The Court: And they would ultimately find their
way into deposits into a bank, into the account for
the French Cafe?
The Witness: Yes, sir.
Q. (By Myr. Gardner): Are those deposits
showh in Exhibits R, O, N, P, 8, and Q?
ees, Sir.
Q. Would vou examine them, please, sir?
Mr. Simpson: If vour Honor please, I thought
this had been established already on direct testi-
mony that the [888} receipts were recorded in the
vear books.
Mr. Gardner: Let the record show that the wit-
ness examined
The Witness: Yes.
Mr. Gardner: Just named and stated that the
receipts were recorded in these books, and that in
instances in which you wrote out a check to cash,
charged it as supphes, that increased the receipts
for that day.
The Witness: Yes, sir, that is correct.
Q. (By Mr. Gardner): And the increased
amount was shown in the exhibits just named; is
that Correct, sir? Aw Gs ein:
Mr. Gardner: Ihave no further questions of this
witness, your Honor.
Myr. Simpson: Just one previous question. I think
384 Estate of Walter IF’. Rau, Sr., etc., vs.
(Testimony of Robert R. Webb.)
perhaps Mr. Gardner has clarified it, though, and
that is this:
Recross-Examination
By Mr. Simpson:
Q. These daily sheets in which the receipts were
increased by the various amounts to which you have
testified, for instance, 3335 on September 20, was not
just for the bank, it also reflected increase in the
receipts for that day? A. Yes, sir. [889]
Q@. And that that amount was then transposed
and recorded in the date books? A. Yes, sir.
Mr. Simpson: Thank you. I have no further
questions,
Mr. Gardner: I have no further questions to ask
ef this witness.
The Court: You may step down.
The Witness: Thank you.
(Witness excused.)
Mr. Gardner: I would like to ask a further
favor of this Court. I have no further questions for
this witness, and if Mr. Simpson anticipates using
him again or does not, I would like this witness to
be allowed to be excused.
Mr. Simpson: At this time, your Honor, I see no
need to recall the witness, but I would lke to re-
serve the right to do that, 1£ 1t becomes necessary.
At this time, I can’t see any occasion for it.
The Court: Do you wish him to be excused?
Mr. Simpson: Yes.
Commissioner of Internal Revenue 389
The Court: He may be exeused.
Mr. Gardner: ‘Thank you, your Honor.
The Court: We will reconvene at 2:00 o’clock.
(Whereupon, at 12:40 p.m., the hearing in the
above-entitled matter was recessed until 2:00
o’clock of the same day.) [890]
Afternoon Session—2:00 P.M.
Mr. Simpson: May it please the Court, Mr.
Gardner has gratiously condescended to permit me
to put two witnesses on out of turn. With your
permission, | call them now. Dr. Seymour Strongin.
SEYMOUR STRONGIN
called as a witness for and on behalf of the Peti-
tioner, having been first duly sworn, was examined
and testified as follows:
The Clerk: Would you be seated. State your
name and address, sir.
The Witness: Dr. Seymour Strongin, Bakers-
field, California.
The Clerk: Would vou spell it?
The Witness: S-e-y-m-o-u-r §-t-r-o-n-g-1-n.
The Clerk: Thank you.
Direct Examination
By Mr. Simpson:
Q. Doctor, you have already stated your full
name and address. I ask you if you will state what
is your profession.
A. JI ama doctor of medicine.
386 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Seymour Strongin. )
Q. By that do you mean that you are a general
practitioner ? A. Yes, sir. [891]
Q. Doctor, have you specialized in any particular
branch of medicine?
A. No, sir. I do general practice.
Q. General practice. And for how long a period
of time have you practiced your profession ?
A. For 30 years in Kern County.
Q. Have you practiced in the town of Bakers-
field? A. Some 27 and a half years.
Q. During that time, did you have oceasion to
treat Mr. Walter F. Rau, Sr., professionally ?
A. Yes, sir, I have.
Q. Can you state to the Court when your treat-
ments began?
A. Isaw Mr. Rau on at least six occasions; first
time, August 24, 1942, and on the last occasion on
September 21, 1945.
Q. Now, can you state the nature of the treat-
ment that you prescribed or advised for Mr. Rau?
A. J treated him for a multiplicity of conditions.
At the time I first saw him, he had an alcoholic
neuritis and arthritis, a thrombophelebitis and myo-
carditis.
During the course of my seeing him, he also de-
veloped myocardio heart failure—that is heart fail-
ure—and he also developed a nephritis, Bright’s
disease.
Q. Excuse me. Go ahead, sir. [392]
A. During the times I saw him, the one thing
Comnusstoner of Internal Revenue Sell
(Testimony of Seymour Strongin. )
that more or less was present on all the occasions
was a considerable degree of alcoholism.
Q. After, when vou saw him, was he under the
influence of alcohol?
A. Mr. Rau was under the influence of alcohol
on every occasion that I saw him.
Q. Doctor, will you state your professional opin-
ion, the excessive use of alcohol and its effect upon
the person’s brain, 1f any?
A. I am convinced that in his condition the use
of aleoho] caused a good degree of mental deteriora-
tion. He was inebriated on all the times I saw him.
He was shaky, excited, inability to reason things out,
wouldn't follow instructions, forgot from time to
time what I told him to do; he wasn’t a very co-
operative patient, primarily, I think due to the fact
that he was drunk most of the time.
Q. Now, would his age be a factor in combina-
tion with the excessive use of aleohol as to any gen-
eral mental habilitation ?
A. The older he got, undoubtedly the more age
did become a factor, that 1s his nephritis and his
circulatory deterioration in itself, could cause men-
tal deterioration; add onto that the alcoholism and
you have a sort of double [3893] impact.
Q. Well now, can you state whether or not you
observed a gradual decline in his physical health,
as well as his mental health ?
A. During the three years I saw him, there was
definitely a decline in his physical health.
388 Estate of Walter F. Rau, Sr., etc., vs.
(‘Testimony of Seymour Strongin. )
Q. Now, let’s cover the years that you examined
avappmeaverab eee A. °42 to ’45.
Q. Doctor, in your professional opinion, was Mr.
Rau mentally capable or competent to manage his
affairs ?
Mr. Gardner: If the Court please, I object to
that question on this grounds, while the doctor is
well qualified as a medical man, he has stated that
he is a general practitioner, there has been no foun-
dation laid that the witness is an expert as to the
manners of the mind, mental competency and that
sort of thing. And I have an idea that that is the
purpose of this question, is to get an opinion of an
expert.
JT submit to the Court that he is not, has not laid
a proper foundation for such a question.
The Court: IJ will receive it as the opinion of a
general practitioner, but not as the opinion of a
man who has devoted himself to mental diseases.
Q. (By My. Simpson): [894] Doctor, with
respect to a man’s mental condition, does the exces-
sive use of alcohol have an adverse, injurious effect
upon his brain?
A. Definitely, alcohol is a toxie agent. It causes
a certain amount of what is chemically regarded as
intoxication, and that is more or less demonstrated
in a manner of speaking, by an inability to reason
and act clearly.
Q. Now, will you state again, sir, whether or not,
in your opinion that Mr. Rau, by the use of alcohol
Commissioner of Internal Revenue 389
(‘Testimony of Seymour Strongin.)
to excess at his age would make him subject to the
influence or wishes of other persons around him?
A. Ihave no doubt that it did make him subject
to the wishes of others around him.
Ma. Simpson: J have no further questions.
| = DU ce 1 ra i
Cross-Examination
By Mr. Gardner:
Q. Dr. Strong
A. Strongin, Strongin, S-t-r-o-n-g-1-n.
Q. Thank vou, sir.
You stated I beheve that you saw Mr. Rau during
the vears of 1942 and 1945; would you state once
again how many times you saw him?
A. I saw him at least six times that I have
record of. [3895]
Q. Now, as to whether or not he was subject to
the will of others, that is strictlv conjecture on your
part, isn’t it, doctor? A. Definitely.
Q. You don’t know that of your own knowledge,
do you, sir?
A. I can’t say that I do; no, sir. [401]
390 state of Walter F. Rau, Sr., ete., vs.
JOHN J. McCARTHY
called as a witness by and on behalf of the Peti-
tioner, having been first duly sworn, was examined
and testified as follows:
The Clerk: State your name and address, please,
sl’.
The Witness: John J. McCarthy. 3130 Union
Avenue, Bakersfield, California.
The Clerk: Your last name is spelled M-c-C-a-r-
t-h-y ?
The Witness: Yes, sir.
Direct Examination
By My. Simpson:
@. You have already stated your full name and
address, doctor. Now, I would like to ask you, are
you a doctor of medicine? A. Yess sim
Q@. Are you a general practitioner?
A. Yes, sir.
Q. And for how many years have you heen a
doctor of medicine? A. Since 1934.
@. And for how many of those years have you
practiced in your profession in Bakersfield; before
you answer that, where have you practiced your
profession ?
A. The past, since 1937, past 21 years, in Bakers-
field, since 1937; and then of course, I had my
internship before that. [405]
Q. You practiced for approximately 27 years in
Bakersfield ? A. No.
Q. Have you specialized:in any——
Commissioner of Internal Revenue 391
(Testimony of John J. McCarthy.)
A. Beg your pardon. ‘37, that will be 21 years.
Q. Yes. Have you specialized in any particular
branch of vour profession ? A. Wo.
Mr. Gardner: I didn’t get that. Excuse me.
The Witness: No.
Mer. Gardner: Thank you.
Q:. (By Mr. Simpson): During the time that
you were practicing your profession in Bakersfield,
did there come an occasion when you were called
upon to treat My. Walter F. Rau, Sr.?
A. Yes.
Q. Do you have any records, or do you recall
when you were first called upon to treat Mr. Rau?
A. My recollecting back to first treating him m
1946; my records show from July of 1947 until the
time he expired.
Q. The records of July, 1947, until he died. the
recollection is that you began vour treatments how-
ever one year prior to that?
A. At least six months, over six months, I know
it was before Christmas, so, nearly a year, yes. [406]
Q. Nearly a vear, 1946. Can vou now state
either from your records, or based on your recollec-
tion the number of times that you treated Mr. Rau
professionally ?
A. Professionally I would sometimes see him
every day; as the years went on, of course, I saw
him more often. At first, I might see him, saw him
about every day for several weeks, and then at least
once or twice a month.
Q. Thereafter?
392 Estate of Walter F. Rau, Sr., etc., vs.
CLestimony of John J. McCarthy.)
A. And then often daily or twice daily, different
spaces of his illness.
Q. Do you remember, do your records show or
can you recall the nature of Mr. Rau’s illness and
what you prescribed for him?
A. Well, in 1946, the reason I was called to the
hotel to see him was because of a marked phlebitis
of the lower legs. That is inflammation and clotting
in the veins.
At that time he was also known to have—he had
a high blood pressure, hypertension, and some con-
gestive heart failure, and chronic nephritis, and
marked arteriosclerosis.
Q. Did you treat him, did you treat him at his
home? Where was he residing when you treated
him ?
A. When I first treated him, he was residing in
the hotel. My records go back to the time I saw him
in the home. I don’t know if I have my records
while he was in the hotel. [407]
Q. Is that the Southern Hotel?
ee Yeo cil:
Q. Now, when you saw him at the Southern
Hotel, you were called in to treat him, did you ob-
serve whether or not he was under the influence of
alcohol?
A. I have been in to see him in the morning,
in the middle of the night, and in the afternoon,
T don’t believe there is any time in those first few
years that he wasn’t at least somewhat under the
influence of alcohol.
Commissioner of Internal Revenue 393
(Testimony of John J. McCarthy.)
Q. Have you ‘examined the records, not only of
vour own, but from any other source, which would
advise you of the condition that Mr. Rau had prior
to the time that you actually began your treatment
of him?
A. Well, I hospitalized him at Merey Hospital
in Bakersfield in December of 1947, because of a
stroke.
Q. Because of a stroke? A. A stroke.
Q. A stroke.
The Court: Was that the first time you had
hospitalized him?
The Witness: Yes, it was. Wait a minute, let
me make sure of that, sir.
Yes, that is the first time I hospitalized him. At
that time, of course, I had reason to look back on
these [408] records, and to see about past history,
and I ran across some very—he was treated by Dr.
Goodall.
Mr. Gardner: If the Court please, I object to
relating to treatment by anyone other than Dr.
McCarthy.
Mr. Simpson: If your Honor please, I think this
witness will testify that he examined the records of
a public institution for the purpose of determining
any medical history of his patient, past. history.
I think he is certainly qualified to testify with
respect to what he found in the hospital records.
Mr. Gardner: I object to this on the ground that
that is hearsay, there is nothing to establish these
records as being accurate, no way we know of that—
394 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of John J. McCarthy.)
how they are kept, just how the entries were made
in them.
I object to any testimony relating to these rec-
ords whatsoever.
The Court: I presume that hospital records
would be admissible in evidence if properly, if the
foundation is properly laid for them. The testimony
here, the evidence now being presented here, goes
one step beyond that. It undertakes to describe the
contents of those records by secondary means.
Mr. Simpson: If your Honor please, I think——
The Court: The—are the records in court?
Mr. Simpson: No. I have asked him if he had
a [409] record or examined any record of past
history of this man. Now, he can certainly answer
that.
Now, if I ask him in connection with that past
history did it confirm his own examination of this
man, now, he would be able to testify to that, cer-
tainly.
The Court: I would receive such records, them-
selves, in evidence, if there was proper foundation
laid for them, but I don’t know what kind of rec-
ords this witness looked at. For all I know, he might
have looked at the right kind of records, or he
might have looked at the wrong kind of records, as
far as admissibility 1s concerned.
Mr. Simpson: Then let me attempt to develop
what the records were and then with leave of
Court
The Court: Then you are faced with the prob-
Commissioner of Internal Revenue 395
(Testimony of John J. McCarthy.)
Jem as to whether or not you have comphed with
the best evidence rule of bringing them in.
Mr. Simpson: Well then, if your Honor please,
I request that the records be kept open until we are
able to obtain these records.
The Court: This request is denied. You are sup-
posed to prepare your case and present admissible
evidence.
Mr. Simpson: That is true. T learned today for
the first time, of course, that there were some other
records available at an earlier date, that were main-
tained in a pubhe institution. So, I have not been
able to find that out [410] until today.
The Court: If you obtain them during the course
of the trial, I will let you present them at any time
during the course of the trial. The record will not
be kept open.
It is up to you to prepare your case and present
admissible evidence.
Proceed.
Q. (By Mr. Simpson): Doctor, prior to the
time that you treated My. Rau, professionally, did
you have occasion, o1 were there any occasions on
which you saw him under the influence of alcohol?
A. Well, I came to Bakersfield in 1937, and my
office was directly across the street from the South-
ern Hotel. I became acquainted with Mr. Rau at
that time, and his family. And had not observed him
professionally, but just in a friendly manner. I
found contact with him quite often, and saw him
almost daily the first few years there.
396 Estate of Walter F. Rau, Sr., ete., vs.
(Testimony of John J. McCarthy.)
Q. During those times, did you observe him un-
der the influence of aleohol ?
A. I would say that most of the time, that as
near as I could determine from his gait and speech,
that he had been drinking.
Q. Now, subsequent to the time that you began
to treat Mr. Rau, did you observe a gradual decline
in his [411] mental condition ?
A, From the time I first started treating him,
there was a definite decline, particularly from the
time that this stroke I was telling you about, that
he had December of 1947, but there had been even
before that time, he had been, in making ealls on
him in the room or the hotel, I was talking to him,
he would often break out crying, and we couldn’t
get very far with him on many of these occasions.
I have known, too, about that time that he was,
when he started water, unable to control his urine,
and stools, and I have seen him, the nurse cleaning
up the bed after him, acting nurse.
The Court: Could you fix the—as near as you
ean, the month and the year in which this latter
began?
The Witness: Well, it was prior to 746. I don’t
know as I could state it any closer than that.
The Court: I thought you hadn’t seem him pro-
fessionally before °46?
A. I hadn’t professionally.
The Court: How would you know about his
incontinence ?
The Witness: Oh, the incontment?
Commnusstoner of Iuternal Revenue out
(Testimony of John J. McCarthy.)
The Court: Yes.
The Witness: That started in the latter part of
‘46, and was more marked in “47, until later he
wasn't able to control them at all. I didn't know
about that. I [412] thought you meant the mental
degeneration.
The Court: At what point did his inability to
control his natural functions commence ?
The Witness: Well, sometimes this wasn't just
an inability, it was perverseness and his way of, I
think, getting back at the nurse a lot of times.
The Court: I didn't hear vour answer clearly.
The Witness: I think at times that this was
purely perverseness on his part that to—about the
only way he could get back at the nurse, for any-
thing he suspected, anything that he didn’t like the
way she might have done to him.
Q. (By Mr. Simpson): Doctor, with respect to
Myr. Rau’s physical condition, can you state if he
was required, in order to move around, did he use
a wheelchair? A. When, did you say?
Q. Yes. A. Of if he was; yes.
Q. Can you state the year in which he was re-
quired to use a wheelchair?
A. Well, I know he was in 747. IT am not sure
about ’46, whether he had one in the hotel or not.
T am quite sure he did, but I wouldn’t swear to
that. I know he had one from the time he moved out
to his home. [413]
Q. Do you know whether his room was on the
first floor of the hotel or second floor?
398 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of John J. McCarthy.)
A. It was second or third. I think it was second.
@. Did he use an elevator? A. Yes.
@. Go to downstairs? A. Yes.
Q. Doctor, in your opinion, do you think that
Mr. Rau was competent to manage his affairs after
you began your treatment in 1946?
Mr. Gardner: If the Court please, I would lke
to make the same objection to the testimony of this
witness that I made to the testimony of the prior
witness, that is Dr. Strongin, on the grounds that,
as I understand it, this is a question calling for an
opinion by an expert, and we have had no founda-
tion laid as to this witness being an expert of the
mind.
The Court: I will receive his opinion with full
awazeness, however, that he has not been qualified
as an expert on mental diseases, but with the knowl-
edge, however, that his opinion is probably worth
more than that of an average layman.
Mr. Simpson: I have no further questions.
The Court: The witness may answer.
My. Simpson: Oh, yes, I am sorry. [414]
Q. (By Mr. Simpson): You may answer that
question, doctor, almost forgot that.
A. Well, it is my opinion, due to the hyperten-
sion, the arteriosclerosis, the senility—he was 73
years of age when he had that stroke—in my physi-
eal examination at the hospital, at that time, which
I didn’t get a chance to
Mr. Gardner: Excuse me, are you referring to
one of those records?
Commissioner of Internal Revenue 399
(Testimony of John J. McCarthy.)
The Witness: No, this is my own.
Mr. Gardner: Excuse me.
The Witness: My own record of the first hospi-
tal eall, he had an areus senilus around each pupil,
which is a physical indication of marked arterio-
sclerosis, probably beyond his years, and with the
alcoholic history over a long period of time, | am
sure that during the time I saw him, and he pro-
gressively got worse, that he was not able to ration-
ally take care of his business.
Mr. Simpson: Thank you, I have no further
questions.
Cross-Examination
By Mr. Gardner:
Q. Now, what was the——
The Court: Was he in your judgment, was he
sufficiently rational however, that you would have
felt justified in [415] cashing a check that he might
have given you for your fee?
The Witness: Well, I believe so, as long as the
bank would honor it. But I seldom did. I don’t be-
lheve I ever did receive a cheek from him, unless
it was sent to the office.
The Court: Would you have felt justified in tak-
ing your fee in cash from him?
The Witness: I did. The reason I got it from
the desk, or I think T have got it from him, too, or
from his nurse. I think during those first vears that
I would have, I am not sure that I did. I don’t see
that it was unethical.
400 Estate of Walter F. Rau, S%., etc., vs.
(Testimony of John J. McCarthy.)
The Court: I put the question to you, not as an
ethical question, but simply to test your judgement
as to how competent or incompetent you thought he
was. And I ask you whether you think he was so
incompetent that you would not have felt justified
in taking, In cashing a check 1f he had given you
one?
The Witness: I think I would have accepted it
the first year or two.
The Court: That is i 1946 and *47?
The Witness: Yes, sir.
Q. (By My. Gardner): It was your statement
that you would accept the check, doctor?
A. Yes, sur. [416]
Q. In those years, 1946 and 1947?
A. Yes, sir.
, J believe you had testified that in, sometime
in 1946 apparently, Mr. Rau apparently lost con-
trol of his natural functions; is that true, doctor?
A. Yes. I did state that. L am not so sure that
he lost, in viewing the testimony, I am not so sure
that he lost control of them at that time, that he
did do his natural functions in bed. How well he
got in trouble, I don’t know.
Q. You don’t know? AS Noy sie
Q. In fact, you rather suspect that he was antag-
onistic or had some grievance against the nurse;
isn’t that what you testified ? A. Qh, sure.
Q. Would you say that Mr. Rau was a rather
strong-willed man, sir?
Commissioner of Internal Revenue 401
(Testimony of John J. McCarthy.)
A. Depends on what you mean by strong-willed.
If you mean determined—
Q. Yes.
A. I would say he was a determined man.
Q. <A very determined man. And he exhibited
this determination during this period, 1946 and
1947, did he not, sir? [417] A. Yes, he did.
Q. I believe you testified that you first knew him
around 1937; is that correct, doctor?
A. Yes, sir.
Q. And your office is just across the street from
the hotel, wasn’t it? A, Yes, sus
Q. Consequently, I imagine—did you dine at the
hotel ? A. Yes, sir.
Q. Did you ever visit the bar at the hotel?
ie Yes.
@. Did you ever have any drinks with Mr. Rau?
Apa NeS.
@. Did you consider him good company?
A. No.
Q. You didn’t consider him good company. Did
he talk too much? A. No. He wasn’t
Mr. Simpson: If your Honor please, I think this
goes way beyond the scope of the direct examina-
tion. It is opening up something that is not even
pertinent to this, whether or not Mr. Rau was good
company or anything else; way beyond the scope of
the direct examination.
Mr. Gardner: If the Court please, there has
been [418] testimony here that, indicating that My.
Rau was drunk all the time, or at least, on the ocea-
402 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of John J. McCarthy.)
sions when the doctor would see him. I would like
to find out just what the doctor considers as being
drunk. I would like to find out just what being un-
der the influence of liquor is. I don’t really know.
The Court: Proceed.
Mr. Gardner: Would you read the question,
please ?
(Record read.)
The Witness: He wasn’t a loquacious man.
Q. (By Mr. Gardner): He wasn’t a loquacious
man? ae Nos
Q. How many drinks would you have with him
when you would see him in the bar, say in 1942?
My. Simpson: Object, your Honor. I don’t see
how that has any relevancy to this issue here, as to
how many drinks this witness had, and that is defi-
nitely beyond the scope of direct examination.
The Court: The number of drinks that this wit-
ness had is of no relevance, the number of drinks
that he observed Mr. Rau take might well be rele-
vant.
Mr. Gardner: I would also like to see just how
many drinks the doctor had at the same time, so
that I can compare his testimony as to whether or
not he may or may [419] not have been under the
influence of liquor, also.
Mr. Simpson: If your Honor please, this is a
professional man, expert, called to testify with re-
spect to a deceased, and counsel for Respondent is
now inquiring into this man’s drinking, as to how
much he can drink in order to make a comparison.
Commissioner of Internal Revenue 403
(Testimony of John J. McCarthy.)
Certainly, it is not only irrelevant, incompetent,
goes beyond the scope of direct examination. I can’t
see how it is admissible at all.
Mr. Gardner: I mean no insult to the doctor,
vour Honor. I merely want to determine just how
he knows, how he knew that the deceased Mi. Rau
was drunk.
The Court: I am satisfied as to the good faith of
Government counsel, and I think it may have some
relevance. This being cross-examination, I will per-
mit him to continue.
Mr. Gardner: Thank you.
Q. (By Mr. Gardner): Now, you understand,
doctor, | am not trying to probe into your private
life at all. A. Yes.
Q. I am trying to find out the number of occa-
sions that you did drink with Mr. Rau and how
many drinks would you have with him, sir?
A. You asked that question and I answered I
had a drink with him, but I probably wasn’t there
once or twice [420] all the time I knew him. Most
of his drinking was done in the room.
Q. Did you observe him drinking in the room?
iN@eeY CS, Sill,
Q. What were you doing on those occasions ?
A. Attending him professionally.
Q. You did not attend him professionally, I be-
lieve you stated prior to 1946?
A. That is right.
Q. Now, in 1942, I understood your testimony to
be that you observed him at least under the influ-
404. Estate of Walter F. Rau, Sr., etc., vs.
(‘Pestimony of John J. McCarthy.)
ence of liquor in ’42, 73, ’4 and ’5; is that correct,
sir? A. That is right.
@. And I asked you whether or not you had
occasion to go into the Southern Bar?
A. That is right.
Q. Did you, sir? A. Yes, sir.
Q. During 1942, 73, 4, and 75?
A. Yes, sir.
Q. Did you see Mr. Rau in the bar at any time,
sir, during those A. Yes.
Q. years ? A. Yes. [421]
Q. Did you have any drinks? A. No.
Q. You had no drinks with him? Would you
speak to him, sir? A. Yes.
Q. Where would he be sitting?
A. I don’t know as I ever saw him sit down.
Oh, yes, I saw him sit in the lobby, but I never saw
him sitting around the bar.
Q. What would he be doing in the bar, sir?
A. He just amble in and amble ont.
Q. Amble in and amble out? A. Yes.
Q. Was he having any trouble walking at that
time, sit? A. Yes.
Q. And how would he get along, with a cane?
A. Some, he used a ¢ane, yes.
Q. He used a cane, he had trouble with his legs,
didn’t he, doctor? A. Yes.
Q. If he were sober, would you say he would
have difficulty walking with this cane?
A. Yes.
Q. If he was under the influence of alcohol,
Commissioner of Internal Revenie 405
(Testimony of John J. McCarthy.)
would it [422] be possible for him to maneuver at
all, doctor, during 1942, °3, “4, and ’5?
Eee VCS,
Q. You think he could maneuver, it would be
sxtremely difficult, though, wouldn't it, doctor?
A. Well, he had what we gall a shuffling gait,
and I think, shuffling gait, [ think that that prob-
ably wouldnt change much as to whether he was
drinking or not.
Q. Is it your testimony, sir, that this man could
be drunk and get along better than an ordinary
person who didn’t need a cane, could walk better
than an ordinary person, sir?
A. No. i meant that he could, he would, his gait
was such that you couldn't tell, perhaps, whether he
has been drinking or from his natural shuffle.
Q. Isee. So that many of the times that vou saw
him it could be the result of this natural shuffle that
vou assumed he had been drinking; is that correct,
doctor ?
A. Well, 1 knew him pretty well, I think; even a
layman could tell that he had been drinking. Actu-
allv, in the room, I was where I saw most of the
drinking.
Q. Weare referring to the number of times you
saw him shuffling into the bar in the vears 1942,
3, *4, and %5, and I suppose he did this in 1946, too?
A. He got pretty, well, feeble that the—at that
time [423] I did, he did some.
Q. You don’t remember whether or not he had a
wheelchair at that time, do you, doctor?
406 Estate of Walter F. Rau, Sr., etc., vs.
(‘Testimony of John J. McCarthy.)
A. I don’t remember for sure.
@. So, if he didn’t have a wheelchair
A. He must have had a wheelchair to get around,
to get down, but I couldn’t swear to that.
Q. You wouldn’t swear to that in 1946, would
you, doctor? A. No.
Q. So that at this time, in order for him to get
around now, here is a man who has trouble with his
legs; doesn’t he, doctor? A. Yes, sir.
Q. And if he is inebriated or drunk, this man
would have a great deal of difficulty walking,
wouldn’t he, doctor ?
A. Well, with that gait, I believe it would be
hard to tell a shuffling gait that is one that you are
protecting yourself, anyhow.
@. Well, could you tell me this, doctor: does in-
toxication, that is from drinking liquor, alcoholic
beverages, does that affect the balance?
A. Yes, sir.
Q. It does, doesn’t it, doctor?
A. Yes, sir. [424]
Q. Now, is it your testimony that the balance in
Mr. Rau’s mind is not affected as much as a person
who was not affected with these diseases that he
had?
A. Well, I would like to have you repeat that,
please.
Q. Maybe I don’t understand it, myself.
' Will the Reporter read it, please?
(Question read.)
Commussioner of Internal Revenue 407
(‘Testimony of John J. McCarthy.)
The Witness: It is a httle ambiguous, but I
would state that the diseases wouldn't make him any
less affected by alcohol; does that answer your
question ?
Q. (By Mr. Gardner): The disease would not
make him anv less affected, is that what you say,
sir? & That is tight.
Q. Now, if he had difficulty keeping his balance
when he is sober, he would have greater difficulty
keeping his balance when he was intoxicated ?
A. That is right.
Q. And it would be much greater than a person
who was not ill or not sick; is that correct, sir?
A. Yes, sir, but may I interject something here ?
Oe ourely:.
A. You are talking about a drunk man all the
time. I am talking about an alcoholic. [425]
Q. Well, very good, doctor. Would you explain
the difference here?
A. Well, as far as we are concerned, the differ-
ence is a matter of acuteness. Acute being you might
say, is one type of—is being drunk or you can be
drunk all the time, but at least in an alcoholic state,
and you don’t have to be drunk all that time. If
you are drinking, it affects the mind, we feel, along
with these other conditions.
Q. Now, does it also affect the balance?
A. I believe it would over a long period of time.
Q. It would, wouldn’t it, doctor? A.) Yes.
Q. Certainly it would. And if a man was, had
these infirmities that you specify, requiring him to
408 state of Walter F. Rau, Sr., etc., vs.
(Testimony of John J. McCarthy.)
use a wheelchair in 1947, 1f he drank at all, or be-
came intoxicated, surely couldn’t shuffle around,
could he, doctor?
A. In 47 he couldn’t shuffle around.
@. But at least he was shuffling around in 1942,
73, “4, °5, and ’6, wasn’t he, doctor?
We Ves vcs isin,
The Court: Now, were the infirmities which re-
quired him to use a wheelchair infirmities that were
related to alcoholism or were they other types of
infirmities ?
The Witness: Well, the alcoholism would have
been one [426] of the causes. The arterio
The Court: What do you regard as the principal
cause ?
The Witness: Well, the arteriosclerosis, what-
ever its cause might be, and alcohol is one that
causes that. Senility is another cause, or any toxic
poisoning and somebody who just developed arterio-
sclerosis by heredity.
Mr. Gardner: Might I clear that up?
Q. (By Mr. Gardner): I beheve you testified,
doctor, that in 1946 he had phlebitis; is that correet,
sir? A. Yes, sir.
Q. Would you explain what that 1s, sir?
A. Phlebitis is an inflammation of veins. The
word means, literally—but he gets clots in the veins,
lower legs, those varicose veins, and they become
infected.
Q. Actually this was the reason that Mr. Rau
had difficulty walking, wasn’t it A. Yes; "stm
Commissioner of Internal Revenue 409
(Testimony of John J. McCarthy.)
Q. That is what we are talking about?
5. “Yes.
Q. That is the reason he had to use a cane?
A. At first. ves.
Q.
And you treated him for that for the first
time in 1946: is that correct, sir?
Kk. Wee 1497]
Q. So that he got along all right in 1946, on up
imto 1947 and sometime in 1947 started using a
wheelchair: isn't that correct. doctor?
A. That is mght. He may have in ‘46, but I am
not sure.
Q. Now, he had this phlebitis. this trouble prior
to “46, didn't he? A. Not to my knowledge.
Q. Did he walk with a cane prior to 1946?
A. He used a cane occasionally.
Q. He used a cane, the reason that he used a
cane was because he had trouble with his leg. isn't
that right, doctor?
A. ‘ff don't know: I wasn't his: plivsician.
Q. When you examined him in 1946, could you
tell me now whether or not this looked like a chronic
condition, or was this something absolutely new?
A. The phlebitis was an acute flareup, but the
arteriosclerosis, that was an old thing.
Q. That was the reason he walked around with
a cane, wasn’t it. doctor? A. Yes,
Q. That was shown by your examination, too.
wasn’t it? A. Yes, sir. [428]
Q. Now then, let me ask you this: doctor, did
you have any financial transactions with Mr. Rau,
410 Estate of Walter F. Rau, Sr., etc., vs.
(‘Testimony of John J. McCarthy.)
other than for your fee? A. No, sir.
@. Did you ever observe him in talking or dis-
cussing financial matters with others?
Aa NO, Sir.
@. When you would see him in the hotel, did
you observe whether or not be would go around to
the desk, or go around to the cash register, or any-
thing like that?
A. J never noticed that he did. He just kind of
seemed to be wandering around, looking around. I
didn’t see him taking any particular interest in the
business.
Q. But he was there all the time, wasn’t he,
doctor? A. That I don’t know.
The Court: Fix the time of your inquiry.
Mr. Gardner: Yes.
Q. (By Mr. Gardner): Referring specifically to
the years 1942, 1943, 1944, 1945, 1946 and 1947, that
is up to that time in 1947 that he moved out of the
horhean (he line
A. At the time I took care of him in ’46, late
’46, I don’t believe he ever got out of the hotel ex-
cept going for a car ride or something like [429]
that.
Q. He was right there in the hotel, wasn’t he?
A. They would get him out to the car, some
way, and take him for a car ride. He still had a
wheelchair.
Q. It was in 1947, I believe you testified, doctor,
that he had the cerebral accident; is that correct,
sir ? A. Yes.
Commissioner of Internal Revenue 411
(Testimony of John J. McCarthy.)
@. Some sort of accident, a stroke ?
A. Yes.
Q@. Up until that time he maneuvered around,
didn’t he, doctor? ee NoGsaeeitl,
Q. And he was on the scene, at least you can
testify to that, can’t you, doctor? A. Yes, sir.
Q. Now, vou have stated that you had no finan-
cial transactions with him, haven’t you, sir?
eee aiieis miei Ves, sir,
Q. Did you have any discussions with him re-
garding your fee? A. No, sir.
@. With whom did vou discuss the fee, sir?
A. Usually in the hotel he just—‘‘ Pick up at the
desk on your way out.”’
@. He knew what he was doing, didn’t he, doc-
tor? A. He knew that much all right. [480]
@. During the time that you had your office
across the street, doctor, in *42, ’43, 44, 45, did you
ever observe Mr. Rau go to the bank?
eNO SUT,
Q. You never did. It wouldn’t be your function,
anyway, to sit there and look out the window.
A. No. In ease I happened to be looking out——
Q. The only time you would see him was when
you would go to the hotel?
A. I have seen him from the window in his
earlier years, but just be in the doorway or some-
thing.
— Q. You don’t know where he was going?
mene No:
412 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of John J. McCarthy.)
Mr. Gardner: I believe I have no further ques-
tions.
Mr. Simpson: If your Honor please.
Redirect Examination
By Mr. Simpson:
@. Doctor, vou have been asked some questions
with respect to the activity that you observed on
the part of Mr. Rau in his hotel, the management,
knew what was going, as counsel has stated.
Do you know Mr. Robert Webb?
A. Lhave met him, yes.
Q. Do you know what his position was with Mr.
Rau?
A. I understood that he was clerk or he was,
acted [431] as clerk.
Q. Did you see him at the hotel on the occasions
that vou came into the hotel? A. Yes,
Q. What was he doing?
A. Iusually saw him behind the desk.
Q. Was he running the business, doctor?
A. It appeared that way, but I don’t know. I
didn’t inquire to that.
Q. Do you know Miss Rose Goldstein?
Ao cs,
Q. Did you also see her there at the hotel?
A. Yes.
Q.
Do you know in what capacity she was em-
ployed by Mr. Rau?
A. I don’t—I didn’t know that she was em-
Commissioner of Lnéernal Revenue 413
(Testimony of John J. McCarthy.)
ployed at all. At the time she had a desk there and
did some public stenographic work, as I understocd.
And that is about as well as I knew her. I didn’t
know her real well.
Q@. But you saw her around the hotel on the
occasions that vou also saw Mr. Webb?
A. That is right.
Q. And was it your impression by watching Mr.
Webb, particularly that he was the one that was
operating this business that you saw at the [432]
hotel ?
Mr. Gardner: If the Court please, J believe this
is not proper redirect examination. I didn’t ask any
questions about Mr. Webb or Miss Goldstein.
Mr. Simpson: You asked questions as to whether
or not Mr. Rau was going around and looking at the
business.
The Court: The question is, subject matter is
appropriate enough, I think. But the witness has
already been asked that by Mr. Simpson, and as I
recall his answer, he said he couldn’t swear to it,
as to whether Mr. Webb was running the hotel.
You have rephrased the question. Now you have
stated the same question in somewhat different
words. I think in substance it is the same one that
he previously said he couldn’t answer.
Mr. Simpson: What I am trying to develop now
is whether or not it was his understanding or im-
pression, by watching Mr. Rau, as Mr. Gardner has
developed from him, as to whether Mr. Rau was
414 Estate of Walter F. Rau, Sr., ete., vs.
(Testimony of John J. McCarthy.)
actually running the business, or it was someone
else.
The Court: Perhaps I misheard the question.
Will the Reporter please read it.
(Question read.)
The Court: I am confirmed in my recollection of
the question that it relates to Mr. Webb, and my
impression is that the witness had previously stated
that he couldn’t swear [483] to whether or not Mr.
Webb was running the business. I regard this as
repetitious in another form of the same question
that the witness had previously said he could not
answer.
However, I will let you put it to him and let the
witness endeavor to answer it.
Mr. Simpson: Before we do that, your Honor,
you may be correct in your recollection. I do not
recall his answer to be that he couldn’t swear that
Mr. Webb was running the business.
The Court: That is my recollection of what he
said. The record, the transcript will speak for it-
self here. Nevertheless, I will permit the witness to
eive his answer to the question at this time.
You may answer that, doctor.
Mr. Simpson: J will withdraw the question; I
will not ask the question.
Q. (By Mr. Simpson): Doctor, on the occasions
that you came to the hotel, did you see Mr. Webb
there on each of those occasions ?
A. Not always.
Commissioner of Internal Revenue 415
(Testimony of John J. McCarthy.)
Q. When vou did see him, what was Mr. Webb
doing ? A. Almost always behind the desk.
Q. Did you see Mr. Webb at the bar?
A. I don't recall. [484]
Q. «At the bar?
A. I dont recall it. I believe that there was a
little room back of the desk—I am not too sure—
that he used to be in there with some papers. That
is as far as I could swear.
Q. The occasions that vou were called to treat
Mr. Rau. were vou called by Mav. Rau or by some-
one else, do you know?
A. Iwas invariably called by someone else.
Q. By someone else. Now, the fee that vou
charged Mr. Rau was no more than you would
charge for any other visit for anyone else?
& Wo, sir.
Ma. Simpson: I have no further questions.
Mr. Gardner: I have no further questions, your
Honor.
The Court: There will be a short recess.
(Cohort 1ecess, )
Mr. Gardner: Call Miss Rose Goldstein, please.
416 Estate of Walter F. Rau, Sr., etc., vs.
ROSE GOLDSTEIN
ealled as a witness for and on behalf of the Re-
spondent, having been first duly sworn, was ex-
amined and testified as follows:
The Clerk: State your name and address, please.
The Witness: My business name is Rose Gold-
stein; also known as Rose Longway, my married
name. 210 Brink [485] Drive, Bakersfield, Cali-
fornia.
Direct Examination
By Mr. Gardner:
@. Miss Goldstein, are you married?
A. Yes, sir.
@. What is your married name, please?
A. Rose Longway.
®. Longway? A. Yes, sir.
@. Do you go under the business name of Rose
Goldstein, do you not? A. Yes, sir.
Q. For the purpose of this record, I will refer
to you, with your permission, as Miss Goldstein; is
that all right? A. Yes, sir, that is okay.
Q. Miss Goldstein, what is your present occupa-
tion?
A. Public stenographer, Notary Public, income
tax service, telephone, mailer.
Q. And where is your office at the present time?
A. Well, since the last two years I have been
doing some of my work at home, that I have been
hurt. I had to give up my office.
Q. So now you maintain your office in your
home; is that correct? [436] A. Yes) sing
Commissioner of Internal Revenue 417
(Testimony of Rose Goldstein.)
Q. What is the nature of your infirmity, Miss
Goldstein ?
A. Well, I fell down an elevator and broke both
my legs. That will be two years the 22nd of next
month.
Q. Now, referring to the, a period prior to this,
back in the early °80’s, would you state whether or
not you knew Walter F. Rau, Sr.?
A. I think I met him approximately about 1935.
I am not
Q. 1935? A. Yes, sir.
Q@. What was the occasion of this meeting, Miss
Goldstein ?
A. Well, I would go in there to eat, you know,
in the hotel there. I knew some people and then I
went in there about—he wanted me to type the
menus for the French Cafe.
@. Well, how did you become engaged to type
the menus for the French Cafe?
A. Fred Seal, one of the guests who was staying
there was talking to M1. Rau and he came and
asked me to go see Mr. Rau and Mr. Rau called me
and I made an appointment with him.
Q. This was as near as you could place it in
the [437] year 1935; is that right?
A. Approximately; yes, sir.
Q. Would you state whether or not you subse-
quently moved your office to the lobby of the South-
ern Hotel? A. I did later on.
Q. How much later on? A. Well—
Q. 1935, 1936, about two months later?
418 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
A. Well, from two months to six months later.
Q. You moved your offices and this was in 1935
then ?
A. Well, approximately that time.
Q. Approximately. What sort of accommodations
did you have in the Southern Hotel, Miss Gold-
stein ?
A. Mr. Rau, Walter F. Rau, Sr., says I could
have my desk space there for tvping the menus and
one meal a day.
And where was your desk space?
It was in the hotel lobby.
In the hotel lobby?
1907 Chester Avenue.
Did you subsequently do any other work for
Mr. Rau?
A. Well, one time Mr. Webb came to me and
OFore
asked if I knew of a bookkeeper. I said, well, what
about myself, [438] and then Mr. Webb came back,
IT don’t know whether that same day or the next,
and he said Mr. Rau said you could take care of it.
T asked him how much he would pay me. He said
$10 a month.
Q. $10a month? A. Yes, sir.
Q. Just what businesses or business did you keep
the records for; were you employed to keep the
records for?
A. The Southern Hotel, and when they opened
up the French Cafe, and then after prohibition, the
Southern Wine and Liquor.
Q. In other words, I believe you stated that you
Comnussioner of Internal Revenue 419
(‘Testimony of Rose Goldstein.)
were emploved in 1935; could it be that you were
employed prior to 1935?
RK. Well, I can’t recall.
Q. In any event, vou do know that you took care
of the records of the Southern Wine and Liquor
and the French Cafe, and the Southern Hotel?
A. Yes, sir, and others for Mr. Rau.
Q. And others for Mr. Ran? A. Yes, sir,
Q. But relating to those three?
A. Yes. [489]
Q. That is once again the Southern Hotel, the
French Cafe, and the Southern Wine and Liquor?
A. Yes, sir.
Q. Would you state whether or not you were
keeping those records in 1935?
A. Well, approximate to my, to the best of mv
knowledge.
Q. Were vou keeping them in 1936?
A. Up until the time the hotel was demolished.
Q. You kept them all through those years?
A. But not for the French Cafe after June 6,
when they went into partnership. I didn’t take care
of that.
Q. June 6 of 1946?
A. To when Mr. Bender and Mr. Rau went into
partnership.
Q. I see. That was in 1946? A. Yes, sir.
Q. I see. Now, did you also prepare the income
tax returns for Mr. Rau? A. I did.
Q. Did you prepare the income tax returns for
the years 1942 to 1946? A. Yes, sir.
420 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
Q. Ishow you Exhibit 2D, the income tax return
of Walter F. Rau, Sr., and Mary Agnes Rau, for
the year 1942, [440] and ask whether or not you
prepared that income tax return or those income tax
returns ? A. Yes, sir.
@. I show you the mecome tax return for the
year 1943 for Walter F. Rau, Sr., Exhibit 3E, and
ask whether or not that is your signature on the
bottom of the face of the return?
A. That is
Q. Did you prepare that return?
A. Yes, sir.
Mr. Simpson: If your Honor please, I stipulate
that she prepared the returns for all the vears he
has. It won’t be necessary to go through all that.
Mr. Gardner: Very well. It is stipulated that
Miss Goldstein, Rose Goldstein prepared the income
tax returns of Walter F. Rau, Sr., for the years
1942, 19438, 1944, 1945, and 1946, and that she also
prepared these separate income tax return of Mary
Agnes Rau, for the year 1942.
Mr. Simpson: Stipulated.
Q. (By Mr. Gardner): Now, Miss Goldstein, in
preparing the income tax returns for each of these
years as indicated, what books and records did you
use to prepare the returns?
A. You mean where I got the information?
Q. Yes. [441]
A. Or—well, I would get it from the check book
when I would write in my cash journal, and then
Commissioner of Internal Revenue 421
(Testimony of Rose Goldstein.)
for the cash sheets of the Southern Hotel showing
the room rents.
Mr. Simpson: Sorry, vour Honor, I didn’t hear
the second. She used the check books and what was
the second ?
The Court: The Reporter will read it to vou.
(Record read.)
The Witness: And other incomes.
Q@. (By Ma. Gardner): Other what?
A. Other incomes.
Q. My. Rau had more business in these years
than just the Southern Hotel, the Southern Wine
and Liquor, and the French Cafe, did he not?
A. Yes, sir.
Q. Now, J am going to direct my questioning to
the French Cafe, and I hand vou what has been
marked as Respondent’s Exhibit R, which states it
is a vear book for the vear 1942, and ask if vou
know what that book is?
A. Well, these would be the amounts that would
be taken off of those cash sheets.
Mr. Simpson: Objection, your Honor. I don’t
think there is anv foundation laid that this witness
ean testify that she made those entries in those
books, or what they constitute; asking for a con-
clusion of what is in that record. [442]
The Court: Will you rephrase your question,
Mr. Gardner?
Mr. Gardner: I asked my question I believe, if
the Court please, was whether or not she could iden-
tify this book, if she knew what it was, your Honor.
422 Kistate of Walter F. Rau, Sr., ete., vs.
(Testimony of Rose Goldstein.)
The Witness: Yes, sir.
Q. (By Mr. Gardner): Would you state what
that book is, Miss Goldstein ?
A. That is where I would get my records for the
receipts of the French Cafe.
Mr. Simpson: It is not responsive to the ques-
tion.
Mr. Gardner: I think it is, your Honor. This is
the book where she would get the records of the re-
ceipts. Now, we will trace that from her to her
other records.
The Court: The answer will stand.
Q. (By Mr. Gardner): Now, for the year 1942,
vou were referring to Respondent’s Exhibit R; is
that correct? A. Yes, sir.
Q. Now, the year 1943, Exhibit O, would you
exnmine that book and state if you know what it is?
A. The same as—get my receipts for the French
Cafe.
Q. Would you also get your receipts for the
Southern Bar out of that, too, Miss Goldstein ?
A. Yes, sir. [443]
Q. Thank you.
The Court: Would that be true also for the other
book, 19———
The Witness: Yes, sir.
The Court: 1942?
The Witness: Yes, sir.
Mr. Simpson: I will stipulate that the same pro-
cedure followed throughout the rest of the years.
Commissioner of internal Levenue 423
(Testimony of Rose Goldstein.)
Q. (By Mr. Gardner): Did you follow the
same procedure throughout the years 1944, “45 and
1946? Key es) Sin.
Q. Of getting the receipts for the French Cafe
from these year books set up as Exhibit N, Exhibit
P, Exhibit Q, and Exhibit 8? A. Yes, sir.
Q. Now, Miss Goldstein, there is just one other
thing ;
Your Honor, at this point, the vear book for the
year 1944 shows in gold ‘‘Year book 1938,” and
the dates throughout this book show 1938, printed
dates. Counsel has stipulated that this book, Exhibit
N, relates to the vear 1944 and shows the daily
receipts of the French Cafe and Southern Bar for
that year
Mr. Simpson: So stipulated. [444]
Q. (By Mr. Gardner): Now, Miss Goldstein,
you have stated that these year books contained the
receipts from the business known as the French
Cafe, and the Southern Wine and Liquor; is that
eorrect ? A. To my knowledge.
Q. At least, these are the receipts that you used
and recorded; is that correct? A. Yes, sir.
Q. I will show you Exhibit M, referring now to
S-8 of Exhibit M, dated September 25, 1948, and
ask whether or not you recognize that sheet?
A. Yes, sir.
Q. What is that sheet, Miss Goldstein?
A. That is the daily cash sheet from the French
Cafe and all cash purchases made.
424 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein. )
@. Now, does that show on there, Miss Gold-
stein, the purchases relating to the French Cafe?
ive Ves, Silt
Q. Where would that be shown there, Miss Gold-
stein ?
A. Well, it would be on the left hand, it would
be the purchase and miscellaneous on the right, both
together, would be the full amount of the cash paid
out during that day.
Q. Now, is there a total shown as cash paid out
on [445] sheet for September 25, 8-8 of Exhibit M?
A. Yes, sir.
@. What is the total paid out? A. $153.58.
Q. Did you use that figure in computing the pur-
chases of the French Cafe for the entire year;
would that figure be included?
A. You mean the purchase by check?
Q. The purchases for the French Cafe?
A. Well, we had both check purchases and cash
purchases.
Q. I see. And—— A. Yes, sir.
@. Where would you get your cash purchases?
A. From these daily sheets.
Q. From these daily sheets ? A. Yes, sir.
Q. What was your practice, Miss Goldstein,
would you record each day’s purchase in your other
book? A. No, sir, I would do it monthly.
Q. You would do it monthly? A. Yes, sir.
Q. Then you would go through these daily slips
and total the cash purchases; is that right, sir?
A. Yes, sir; yes, sir. [446]
Commissioner of Internal Revenue 425
(Testimony of Rose Goldstein.)
Q. Did you do that in each of the years involved,
Mrs. Goldstein? Sy igwlee Alm!
Q. 1942, 1943, 1944, 1945, and up to May 6, 1946?
A. June 6, 1946.
Q. June 6? A. Wes, sit:
OF Allbtight.
The Court: That is for the French Cafe?
The Witness: Yes, sir.
QO. (ByeM. Gardner): Referine to the vear
1944, Miss Goldstein, Exhibit 4F, the income tax
return of Walter F. Rau, Sr., for that year, turn-
ing to a schedule contained in that income tax re-
turn, and exhibit headed the French Cafe, vear 1944,
would vou state the amount shown therein as pur-
chases? A. Yes, six.
Q. What is the amount, please?
A. Purchases is $55,944.92.
Q. Could T have that last answer, please?
A. $55,944.92.
Q. That is the amount shown in the income tax
return for the year 1944, Walter F. Rau, Ex-
hibit 4F? A. Yes; sii,
Q. Under the French Cafe, shown as pur-
chases? [447] ", Yes, sim.
Q. Do you know whether or not that figure is
correct, Mis. Goldstein ?
A. Well, I can’t say right now, offhand.
Q. Well, Miss Goldstein, did I ask you to ex-
amine this figure and also to examine the records
of the French Cafe, showing purchases to determine
426 Estate of Walter F. Rau, Sr., ete., vs.
(Testimony of Rose Goldstein.)
whether or not the figure shown there under pur-
chases is correct; did I ask you to do that?
A. No, sir. They are incorrect.
Q. It is incorrect? A. Yes, sir.
Q. Now, you can—did you examine your work,
or your books relating to the French Cafe, pur-
chases, that is this
Mr. Simpson: If your Honor please
Q. (By Myr. Gardner): The book right here in
the courtroom, did you examine that and compare
the purchases shown in that book with the purchase
figure shown on Exhibit 4F'; did you do that?
Mr. Simpson: I don’t understand what counsel
means by that book. When we get the record it is
not going to be clear to me, as to what this witness
examined in connection with this return, in pick-
ing a figure out of that return and [448] saying that
book, and then asking for a conclusion.
The Court: Government counsel will identify
the book.
Q. (By Mr. Gardner): The book referred to in
the question relates to the——
A. Caneelled checks.
Mr. Gardner: Records maintained for the
French Cafe for the period January 1, 1941, to
June of 1946; it shows therein
Mr. Simpson: May I ask if counsel is testifying
with respect to this record.
Mr. Gardner: I am identifying a book, if the
Court please.
Mr. Simpson: I submit, sir, that he lay the
Commissioner of Internal Revenue 427
(‘Testimony of Rose Goldstein.)
proper foundation for the purpose of identifying
this record that he is talking about.
My. Gardner: Very well, your Honor.
The Court: Wiull you have the clerk stamp it.
Mr. Gardner: Yes, I will.
The Clerk: Respondent’s Exhibit U marked for
identification.
(The document above referred to was marked
Respondent’s Exmbit U for identifica-
tion.) [449]
Q. (By Mr. Gardner): Miss Goldstein, I hand
vou what has been marked Exhibit U for identifica-
tion and ask whether or not you can identify this
book? A. Yes, sir.
Q. Has that book—what is that book?
A. That is my cash journal where I kept my
records of Southern Hotel, French Cafe, and
Southern Wine and Liquor.
Q. For what years?
A. From 1948, I think, or 1941, up until 1946,
June 6, 1946.
Q. Now, you are speaking of the French Cafe
when you say up to June 6 of 1946, aren’t you?
A. Yes, sir.
Q. Now, did I ask you, Miss Goldstein, to ex-
amine the purchases shown in Exhibit U, for the
year 1944, and compare the total per books with the
total on the income tax return, Exhibit 4F?
A. Well, this was all monthly, so I didn’t have
the total vear.
428 Estate of Walter F. Rau, Sr., etc., vs.
(‘Testimony of Rose Goldstein. )
Q. Yes.
A. And, whether I have it in that ledger, I
don’t know, but I would have to take each month,
take a register tape, register receipt and get my
amount.
Q. Well, do you recall whether or not you did
that, [450] Miss Goldstein ?
A. Yes, sir. That is the way I had to get it, in
order to get my amount of purchases for the year.
Q. Yes, and did you do that just recently for
me, did you compute that? A. Yes, sir.
@. And did you compare the amount?
A. Yes, sir.
Q. Per books with the amount on that?
A. Yes, sir.
Q. Would you state now whether or not pur-
chases shown in Exhibit 4F, under the French
Cafe, in the amount of $5,594—wait a minute—$55,-
944.92 is correct, or coincides with the amount in
the books? A. No, sir.
Q. What is the difference, Miss Goldstein?
A. Well, it would be approximately about $10,-
000 that I would have to add on.
My. Simpson: If your Honor please, now coun-
sel has asked her if she has made the comparison.
Tt was not correct, she stated a conclusion. Now,
she says approximately. I think that we are en-
titled to the exact amount of difference.
Mr. Gardner: May I develop that. I think I
ean get the exact amount here.
The Court: Proceed. [451]
Commissioner of Internal Revenue 429
(‘Testimony of Rose Goldstein.)
@. (By Ma Gardner): Does the figure shown
as purchases, does that contam an erasure on FEx-
hibit 4 for the French Cafe? A. Yes.
@. And what was the figure originally put in
there, if you can see it?
A. You mean before?
Q. Yes. A. $45,000.
Q. $45,000? A. Yes, sir.
@. And you increased that by ten?
The Court: Was it $45,000 even?
The Witness: Yes, sir.
Mr. Gardner: No.
Mr. Simpson: Mr. Gardner, I would suggest that
you let the witness testify, sir.
Mr. Gardner: I am merely trying to keep the
record straight.
The Court: What was the amount before the
erasure ?
The Witness: $45,944.92.
Mr. Simpson: Well, if the Court please, this is
very confusing to me. There is an erasure, this wit-
ness testifies that there was a four in place of the
five, and from what I can see, I can see no other
figure than a five on this [452] exhibit.
The Court: That is subject for cross-examina-
tion.
Mr. Gardner: If the Court please, the books are
here in evidence, and Mr. Simpson wants to save
time, he can run these purchases as they are shown
on the records, and come up with the figures which
the witness is testifying to, I believe.
430 Estate of Walter F. Rau, Sr., ete., vs.
(Testimony of Rose Goldstein.)
The Court: That is another matter, Mr. Gardner.
The question that is presently pending, or that the
withess was answering, had to do with the specific
figures that appeared upon Exhibit 4F.
Myr. Gardner: Yes.
The Court: What there was before the erasure
and what after?
Q. (By Mr. Gardner): Did you make the era-
sure on there, Miss Goldstein ?
A. Well, I put the amount over that; whether
I erased it or not, I can’t recall.
Q. Is that your figure, the five, relating to Hx-
hibit 4K, French Cafe purchases? A. Yes.
Q. That is your figure? A. Yes, sir.
Q. Could you state whether or not you had any
eonversations with Mr. Rau regarding the inser-
tion of the [453] figure five, as you have just
stated ?
A. Well, the way I would have to bring—how I
eame to that
Q. Did you have any conversations with Mr.
Rau? A Wes, sirsi yes, cm
Q. Could you state what was said?
A. When I had the figure prepared to put in
the income tax blank, I showed them to Mr. Rau,
and I told him that he had a tax to pay. He said,
‘‘Raise the purchases,’’ because even 1f you had a
small tax to pay, than to pay the amount—and I
told him, ‘‘Mr. Rau, leave it the way it is.”? He in-
structed me to raise the purchases.
Q@. Did you raise the purchases?
Commissioner of Internal Revenue 431
(‘Testimony of Rose Goldstein.)
A. I did, on his orders.
The Court: You raised it from what to what?
The Witness: From $45,944.92 to 55,944.92.
The Court: Now, did the purchases as shown
in Exhibit U for that year add up to exactly $45,-
944,927
The Witness: Yes, sir.
The Court: | presume that Counsel for Peti-
tioner will have an opportunity to check these fig-
ures in Exhibit U?
Mr. Simpson: Yes. I thought, in the interest of
time, 1f Counsel had no use for this January cash
journal, we could be adding these figures.
The Cowrt: This is a good time to recess for
the [454] afternoon and I will give you an oppor-
tunity to do it right now.
We will reconvene tomorrow morning at 10:00
o’clock.
(Whereupon, at 4:00 o’clock p.m. the hear-
ing in the above-entitled matter was adjourned
until 10:00 o’clock a.m., July 2, 1958.) [455]
The Clerk: Estate of Walter F. Rau, 61480.
My. Gardner: Should we state our appearances
for the record, or just continue ?
T call Miss Rose Goldstein.
432 Estate of Walter F. Rau, Sr., etc., vs.
ROSE GOLDSTEIN
resumed the stand, having been previously duly
sworn, was examined and testified further as fol-
lows:
Direct Examination
(Continued )
By Mr. Gardner: |
Q. Now, Miss Goldstein, I believe you were in
the courtroom when Mr. Webb was testifying, and
he testified regarding certain checks that he would
make out to cash and label in the check stub ‘‘sup-
plies.’’ This relates to the French Cafe for the years
1942, 1943, 1945 and up to May 6 of 1946.
Do you recall that testimony ?
A. Yes, sir.
The Court: You skipped 1944, Mr. Gardner.
Mr. Gardner: I intended to include that.
The Court: Did you intend to include that?
My. Gardner: Yes, I did, and 1944.
The Witness: Yes, sir.
Mr. Simpson: If your Honor please, if Counsel
intends to use the French Cafe daily sheets on
which are [458] reflected the cash pay outs, I will
be willing to stipulate that, to save him the trouble
of going through each year with this witness.
Mr. Gardner: As I understand it, Counsel is
willing to stipulate that the amounts reflected in
the check stubs for the French Cafe for the years
1942 up to May 6 of 1946 shown as cash and for
supplies, are represented on these Exhibits 20, 22,
23, and 24, that should be amended to state as fol-
lows: That the amounts about to be shown to Miss
Commissioner of Internal Revenue 433
(Testimony of Rose Goldstein.)
Goldstein in the—and the check stubs of French
Cafe for years 1942 up to May 6, 1946——
The Court: May or June?
Mr. Gardner: It is May 6, vour Honor, I believe,
according to stipulation.
Are reflected in Exhibits 20, 22 and 23.
The Court: J don’t understand that stipulation.
Mr. Gardner: Well, I would prefer to go
through it, your Honor.
The Court: Suppose you go through at least one
of the items, then we can see where we stand on it.
Mr. Gardner: Very well.
The Court: The stipulation as it has been for-
mulated up to this point is not very meaningful
to me.
Q. (By Mr. Gardner): Miss Goldstein, refer-
ring to Exhibit 20, going [459] to the date of De-
cember 22, 1943, at the bottom of the page is a sum-
mary apparently of that sheet.
Would you state what that sheet is, please?
A. hat is the daily cash sheet from the French
Cafe.
Q. From the French Cafe? A Ves sir
@. And these figures at the bottom, Miss Gold-
stein, could you tell us what this summary con-
sists of ?
A. Well, the first figure is registered reading,
and then where there would be some meal tickets,
which was added, less that, because meal tickets
were rung up in the full total.
Q. I see.
434 Estate of Walter F. Rau, S7r., etc., vs.
(Testimony of Rose Goldstein. )
A. And then the payouts would be deducted
from that, which would leave a balance of $298.69.
Then the $10, that was taken out for Mr. Rau,
which would leave a balance of $288.69. This check
for $31.45 is to represent cash supplies.
Q. Cash supplies?
A. Which was added to the deposit to make it
over the $300.
The Court: Did they represent actual cash sup-
plies or did that figure represent merely a check
that was drawn to eash purportedly for [460] sup-
ples?
The Witness: There was no supplies bought for
that amount, your Honor.
Q. (By Mr. Gardner): Now, referring to Ex-
hibit T, under date of December 23, 1943, check
stub No. 3269, this check stub shows a check being
made to cash in the amount of $31.45, and in the
remarks column it shows supplies?
A. Yes, sir.
Q. Now, did you record this amount, $31.45, as
supplies for the French Cafe in the year 1943, Miss
Goldstein ?
A. I did, in my cash journal, and put it under
purchases.
Q. You put it under purchases?
A. Yes, sir.
Q. And you knew at that time that there were
no supplies actually purchased, didn’t you, Mrs.
Goldstein ?
A. According to that, no, because I asked once
Commissioner of Internal Revenue 439
(Testimony of Rose Goldstein.)
what that amount was for, and I was instructed
that it was to put it under purchases.
Q. Who did you ask, Miss Goldstein?
A. Well, I asked Mr. Webb, and then when My.
Webb wasn’t there, IT also asked, well, Mr. Rau
was there at the time, also.
Q. Did you ask more than once?
A. Well, when there was no indication what it
was [461] I had to ask what it was for.
Q. But this shows supplies on the stub, doesn’t
it? we Yes, sit:
Q. Is that where vou got your information?
A Yes, sir:
The Court: Did you similarly record under pur-
chases the items appearing in all similar check
stubs of the check book of the French Cafe for all
the years involved?
The Witness: Yout*Honor, I did it at first, and
then Ma. Rau told me to wait at the end of the
month and add up the cash supphes, plus that
amount and put it under one check and cash.
The Court: In one form or another, every one of
these items was included on the books as purchases?
The Witness: Yes, sir.
Q. (By Mr. Gardner): Did that apply to each
of the vears 1942, 1943, 1944, 1945, and up to May
6, 1946? ae Yessir
The Court: And upon whose instructions did
you make those entries?
The Witness: By Walter F. Rau, Sr., and Rob-
ert Webb.
The Court: Both of them?
436 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
The Witness: Yes, sir.
Mr. Gardner: If the Court please [462]
The Court: And when you came to make out
the income tax returns, were those amounts simi-
larly reflected in the computation of the income?
The Witness: Yes, sir.
The Court: Of each of those years?
The Witness: Yes, your Honor.
My. Gardner: If the Court please, I would lke
to introduce check stubs for the years, portion of
each of the years in support of Miss Goldstein’s
testimony.
Mr. Simpson: If your Honor please, it won’t be
necessary, I think that we have now probably ar-
rived at a basis for the stipulation, if your Honor
pleases, now understands the nature of what was
testified to, with one exception, that is that Miss
Goldstein also testify that those amounts also ap-
pearing as supplies on the check stubs also appear
on the daily sheets of the French Cafe, and are
recorded as additional income and not Just money
deposited in a bank, as she stated, then we will have
the basis for the stipulation; won’t be necessary to
go any further with it.
Mr. Gardner: If the Court please, I believe that
My. Webb made that clear, that he did add that to
the receipts.
Mr. Simpson: Yes. Well, if she stipulates dif-
ferently, that is one thing, but I thought the rec-
ord [463] ought to be consistent; save a great deal
of time doing it that way.
Commissioner of Internal Reveinite 437
(Testimony of Rose Goldstein.)
The Court: I am perfectly happy to receive a
stipulation of Counsel. My difficulty with this pro-
posed stipulation a few minutes earlier was that
in the endeavor to formulate it, on the spur of the
moment, the stipulation, the proposed stipulation
that emerged was not a meaningful or a very clear
one.
I want to make another effort at it. I would be
perfectly happy to have vou do so.
Mr. Gardner: I would hesitate to try on the
spur of the moment, your Honor.
The Court: Let me ask the witness this:
You heard Mr. Webb testify, I take it, Miss
Goldstein ?
The Witness: Yes, your Honor.
Vhe Court: And as I reeall his testimony, these
checks that were made out to cash, and which were
identified in the, on the check stubs as having been
made out for supples——
The Witness: Yes, sir.
The Court:
each day.
The Witness: Not to the receipts. The balance
of the receipts, after the cash supphes were first
taken off, and plus the $10 taken off, and then that
check was added. [464]
The Court: But the net effect of that, of such a
check, was to increase the receipts by the amount
of that check?
The Witness: Yes, sir.
The Court: So that when you subsequently re-
were added to the receipts of
438 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
corded these checks on the books, as amounts ex-
pended for purchases or supphes
The Witness: Yes, sir.
The Court: the net effect was simply to
neutralize the inclusion of the amounts of those
ehecks on the daily sheets?
The Witness: Yes, sir.
The Court: On the one hand the daily income
was increased by the amount of those checks, but
on the other hand, by vour including them in pur-
chases, the purchases simply washed out the in-
ereased amount of the daily receipts?
The Witness: Yes, vour Honor.
Mr. Gardner: And that
The Court: J think I understand it.
Mr. Simpson: Yes. Your Honor, you have a
clear understanding that is exactly what transpired,
and I could see that if Mr. Gardner was to pursue
the same thing that we covered with Mr. Webb,
it would be a complete repetition of what he already
testified to, the net effect of which would be a
standoff. It would be neutralized because of [465]
the way it was handled in the books and in the re-
turn.
Tam perfectly willing to stipulate she will testify
this way, and dispense further questioning along
those lines. Now, that is clear to your Honor?
Mr. Gardner: I want the record to show that
Mr. Simpson: It should show that——
Mr. Gardner: ——exactly what she testified
to——
Commissioner of Internal Reveniue 439
(Testimony of Rose Goldstein.)
The Court: I think I understand it, and I think
there is no dispute between Cotnsel as to this point.
Nevertheless, I will permit Mr. Gardner to make
it clear beyond any residual doubt, if he wishes.
Mr. Gardner: J don't desire to prolong this
thing, if the Court please.
The Court: You may go ahead.
Q. (By Mr. Gardner): I believe that you testi-
fied, Miss Goldstein, that in some cases you re-
corded the exact amount in your records; is that
correct ? Wee Ves sim
Q. That is the exact amount of the check stub
showing a check to cash for supplies?
A. Yes, sir.
Q. As testified to by Mr. Webb. Now, would
you examine check stub No. 3394 a part of Exhibit
T, dated January 6, 1944, and state the amount
shown therein? [466]
A. The amount stated here is $62.30.
Q. Referring to Exhibit U, for identification,
Miss Goldstein, would you look on there and see
whether or not you can find the check to supplies
in the amount of $62.30 under date of January 6,
1944, recorded? Aves Yes; slay
@. Recorded in your records?
5 Ves, sir.
Q. And what is the record that you have there,
Miss Goldstein ?
A. Ihave the cash supplies, cheek number under
my bank, $62.30, brought over under purchases,
$62.30.
440 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
@. And that relates to the date of what?
A. dJannary 6, 1944.
@. What page number—we do not have pages
herve, your flonor.
A. Well, it is cash journal 1.
Q. Cash journal 1 of the French Cafe; is that
correct ? A. Yes, sir.
Q. Of Exhibit U; is that correct?
A. Yes, sir.
Q. Now, as I understand it, in other months
you lumped or added up these checks payable to
eash for supplies; is that correct? [467]
A. Yes, sir.
Q. And then you included them in purchases
in these very same records, Exhibit U?
A. Yes, sit.
Q. And these very same records, Exhibit U, are
the records that you used to prepare the income
tax returns, are they? A. Yes, sir.
Q. That applies to each of the years 1942, 43,
1944, 1945, and 1946; is that correct?
A es, Sie
Q. Now, in each of those years purchases was
overstated in a like amount as shown on these cash
supplies; is that correct ? A, Yes; sig
Q. Now, there is one further point relating to
purchases, Miss Goldstein. I hand you Exhibit 3H,
the individual income tax return of Walter F. Rau
for the year 1943, and turning to the schedule
therein marked French Cafe, it has a gross sales,
it has inventory, and it has purchases.
Commissioner of Internal Revenue 44].
(Testimony of Rose Goldstein.)
Now, during that year, it says purchases made
during the year, $66,791.12. Do you see that figure,
Miss Goldstein ? A. Ido.
Q. At my request, did you examine your records
and [468] total the purchases according to your
records, that is Exhibit U, for identification, to
determine the total amount of purchases in your
records ? Ay Yes, sit
Q. And aecording to those records, what was
the total amount of purchases that you had in Ex-
hmm i tor 194357
A. For 1948, the French Cafe total of purchases
taken from my cash journal, from January 1, 1943,
up to and including December 31, 1948, was $48,-
Silke Sak.
Q. Now, would you read once again the total
that you have on the income tax return, please?
A. $66,791.12. :
Q. And purchases are considerably overstated
then in the income tax return, are they not, Miss
Goldstein ? A. Yes, sir.
Q. Do you know why this was done?
We Yes: si.
Q. Would you state the circumstances surround-
ing the insertion of $66,000 some odd dollars as
purchases on the income tax return Exhibit 31?
A. When I had the income tax figures made up,
I took them over to Mr. Rau, to have him check
them, showed what tax he had to pay. He told me
to boost the purchases so he wouldn’t have much
442 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
income tax to pay, or none, and I [469] did it ac-
cording to his instructions.
The Court: Now, you testified that the purchases
shown on the books were $48,503.91 ?
The Witness: Yes, sir.
The Court: Now, did that figure include the
amounts that appeared on the check stubs with re-
spect to checks made out to cash for supplies, where
the supplies were not in fact purchased ?
The Witness: Yes, your Honor.
The Court: So that even the $48,503.91 figure
was an inflated figure ?
The Witness: You mean were those extra
checks?
The Court: Yes.
The Witness: Yes, sir.
The Court: But to the extent of that, that it
was inflated in the $48,503.91, that inflation was
offset by the similar or rather a corresponding arti-
ficial increase in the amount of receipts?
The Witness: Yes, your Honor.
The Court: But the increase, however, from
$48,503.91 to $66,791.12 was not offset by any cor-
responding
The Witness: No, sir.
The Court:
ceipts?
The Witness: No, your Honor. Do you want
this, your Honor? [470]
Q. (By Mr. Gardner): Now, Miss Goldstein,
you heard the testimony of Mr. Webb to the effect
corresponding increase in re-
Commissioner of Internal Revenue 443
(Testimony of Rose Goldstein.)
that he prepared these daily slips for the French
Cafe in each of the years 1942, on up to May 6,
1946, did you not? A. Yes, sir.
Q. And he stated that when he was absent, or
when he went on away for a couple days, or he was
sick, that you took over for him; is that correct,
Miss Goldstein ? A. Yes, sir.
Q. And did you earry on, that is, did you make
out the daily slips as Mr. Webb testified he made
out the daily ships?
A. Just about, in part.
Q. Just about, in part? A. Yes, siz.
Q. In order to refresh your recollection, I will
hand you once again Exhibit 20, and we will go to
the first one on that exhibit under date of Septem-
ber 20, would you tell me what that ten represents
in the summary on the right side of the sheet?
A. That was $10 that was taken out for Mr.
Walter F. Rau, Sr.
Q. Now, during the times that Mr. Webb was
absent, just exactly what did you do; did you re-
ceive the receipts [471] from the French Cafe ?
my i did:
Q. Did you receive the receipts from the South-
ern Wine and Liquor store? A. I did.
Q. Now, when you received the receipts from
the French Cafe, would you state just exactly what
you did, Miss Goldstein ?
A. I did according to what Mr. Webb instructed
me to. I put the total receipts, less the payouts,
444 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
less the amount $10, to Mr. Rau, and added that
eash supply check.
Q. Now, what about the Southern Wine and
Liquor? A. Did the same thing.
Q. You did the same?
A. Although there wasn’t many cash payouts
there.
Q. What did you do with the money?
The Court: What was the amount that was
taken off for the bar, or the Southern Wine and
Liquor Company ?
A. Every day of the week was $25,
Q. (By Mr. Gardner): Did you ever have oc-
easion to take off any more than $25, Mrs. Gold-
stein ?
A. Oh, Mr. Rau’s orders on Saturdays, Sundays
or holidays.
Q. How much would you take off then? [472]
A. You mean from the cafe, or the bar, which?
Q. Well, let’s talk about the French Cafe, first.
A. Well, on the French Cafe on Saturdays, Sun-
days and holidays, he would take off from $100 to
$125, or $150.
Q. Now, did that apply for the years 1942 to
May 6 of 1946?
A. Yes, sir, your Honor; yes, sir.
Q. In each of those years; is that correct, Mrs.
Goldstein ? A. Yes.
Q. You did this personally on occasion?
A. Well, I did it in Mr. Rau’s presence, when
Mr. Webb wasn’t there.
Commissioner of Internal Revenue 445
(Testimony of Rose Goldstein.)
Q. Now, goimg to the Southern Wine and Liquor
Store, how much would take off of the Southern
Wine and Liquor Store during the week?
me $25 a day, Saturdays end Sundays and holi-
days, Mr. Rau would tell me the amount to take off.
Q@. Did vou do this during each of the vears
1942 to 1947, inclusive ? Se WES, S1E:
Q. Up until the time that the Southern Hotel
“ercrtoan down im Avieoust 7 of 1947; is that cor-
rect ? A. Yes, sir. [473]
Q. In each of those years, you took off money,
#25 during the week and $100 or more as instructed
by Mr. Rau from the Southern Wine and Liquor
Store?
A. No, not from the Southern Wine and Liquor.
How much did vou take off?
A. Well, he would instruct from 125 up to 200.
Oe rom 125 to 100%
A. 2599, and a little bit more.
Q. That would include Saturdays, Sundavs and
holidays? Tale sels
Q. And $25 every day? he Yes.esin
Q. Irom the Southern Wine and Liquor?
A. Yes, sir.
Q. Now, as to the Brench Cafe, you took off
$10 every day and $100 up to $125 or $150 on Sat-
urdays, Sundays and holidays? Ay Ves esi.
Q. And that extended throughout the period
1942 to May 6 of 1946, as to the French Cafe; is
that correct ? AG Yassin,
Q. In each of those years you did that?
446 Kstate of Walter F. Rau, Sr., ete., vs.
(Testimony of Rose Goldstein.)
A. Well——
The Court: On week ends, or days on which
more than [474] $10 was taken out for the cafe and
more than $25 was taken out for the Southern Wine
and Liquor Company, with two amounts taken out
for each one of those, that is to say, take the French
Cafe, let’s assume it was a Saturday
The Witness: Yes, sir.
The Court: Were two amounts taken out for
that Saturday, was $10 taken out separately and
then ancther amount taken out over and above the
$10, or was it taken out in one lump sum?
The Witness: One lump sum, to the best of my
recollection.
Q. (By Mr. Gardner): Now, as you take out
the $10 daily from the French Cafe, what did you
do with that $10, Miss Goldstein ?
A. There was a little slip in Mr. Rau’s key box
and on that slip, which Mr. Rau was present, I
would put the date down and the amount of $10
and put it back in that cubby hole for, where his
key was kept.
Q. And relating to the $25 daily that you would
take out of the receipts of the Southern Wine and
Liquor Store, what did you do?
A. The same thing; the same thing.
Q. Now, as to the amounts on week ends, re-
lating to the French Cafe, that is the amounts of
$100 to $125, what would you do with that [475]
money ?
A. That I would put in an envelope until Mr.
Commissioner of internal Revenue 447
(Testimony of Rose Goldstein.)
Webb would come back on Monday morning, and
T would give, hand him all the records.
Q. In other words, you were just keeping these
records for Mr. Webb, weren’t you?
nw ES. Sil’.
Q. You would give it to him?
fem CS, S11":
Q. And then he would make proper disposition ?
ee eS.) SIT
Q. Now, as to the amounts that you removed
from the receipts of the Southern Wine and Liquor
Store, on Saturdays, Sundays and holidays, that is,
the larger amounts, $125 up to $200, I believe you
testified, what did you do with that money?
A. Same procedure was done on the Southern
Wine and Liquor, as I did on the French Cafe.
Q. Now, Mrs. Goldstein, you kept the books and
records for the French Cafe and for the Southern
Wine and Liquor during the years 1942 on up
through 1947; didn’t you? A. Yes, sir.
@. Can you state whether or not your records
were correctly kept as to the receipts of the French
Cafe and the Southern Wine and Liquor Store?
A. The only record I got for the receipts of
the [476] French Cafe and Southern Wine and
Liquor was from those daily books where Mr. Rau
put the deposits and those deposits was transferred
into my books as receipts.
Q. Now, that applies to each of the years 1942
to 1947, doesn’t it, Miss Goldstein?
A. Yes, sir.
448 Listate of Walter F. Rau, Sr., ete., vs.
(Testimony of Rose Goldstein.)
Q. That relates to the receipts of the Southern
Wine and Liquor Store and the French Cafe?
Be NGC Sie
®. For each of those years? A. Yes, sir.
Q. You are referring to these daily year books,
are you not? A. Yes, sir.
Q. That is Exhibits R, O——
The Court: She was nodding in the affirmative.
cine, \VWiiness vies:
Q. (By Mr. Gardner): ——N?
A. Yes, sir.
The Court: Did I get vour answer to Exhibit 8?
The Witness: Yes.
Q. (By Mr. Gardner): Yes. Exhibit O?
A. Yes. [477]
Q. Exhibit P? A. Yes.
Q. Exhibit Q? A. Yes.
Q. And Exhibit 8? A. Yes, yes.
@. Now, you knew that those receipts were un-
derstated then, didn’t you, Miss Goldstein?
A. Yes, sir.
Q. Did you have any discussions with Mr. Rau
regarding the understatement of the receipts from
the French Cafe and the Southern Wine and Liquor
Store ? A. I did.
Q. Would you state when the first discussion
you had with Mr. Rau took place?
A. Well, when I was taking Mr. Webb’s place
at the time, either on week ends or when he was
sick, or on his vacation. I told Mr. Rau that the
right receipts should have been kept in those year
Commissioner of Internal Revenue 449
(Testimony of Rose Goldstein.)
books, not the deposits, and he says I should go
ahead the way that it had been done.
Q. Did you have a discussion with Mr. Rau in
the vear 1942 concerning this, Miss Goldstein?
mM. Wes, sif.
Q. Did you have a discussion with Mr. Rau in
the vear 1943? [478] A. Yes, six.
Q. Did vou have more than one discussion ?
A. When the income tax was to be made up, I
told him that he is putting in a false income. I
mean, receipts, that he wasn’t putting in the right
amount, that the full amount of receipts should be
put in before anything was taken out as an income.
He told me to go according to the deposits.
Q. Did you have a discussion with him in 1944?
A. Yes, sir.
Q. To the same effect? A. Yes, sir.
@. 1945? A. Yes, sir.
©:
You had a discussion with him in 1945?
A. Yes, sir.
Q. To the same effect regarding these uwnder-
stated receipts for the French Cafe and the South-
ern Wine and Liquor? oe Nes, cide
Q. And what would his answer be in each of
those years? A. The same thing.
Q. And what was that again?
A. That to go according to the deposits, to [479]
show his receipts, and not the full receipts, before
any deduction was taken out.
Q. Did you inform him clearly that his income
tax was understated ?
450: Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
A. I told him that, and J told him that he should
put in the right amount.
Q. Did you have a discussion with him in 1946
regarding the understated receipts from the French
Cafe, and the Southern Wine and Liquor Store?
al cid:
Q. And was his answer the same as in previous
years?
A. Yes, sir. He told me to go according to what
they instructed me to do.
Q. They, meaning who?
A. Mr. Webb and Mr. Rau.
Q. Did you have a discussion with him in 1947
relative to this understatement ? A. I did.
Q. That would be when you were preparing the
1946 income tax return; is that correct?
Xeey Ves esta:
Q. Now, after you prepared the 1946 income tax
return, and in 1947, the French Cafe was then a
partnership, I believe, in that year?
A. It was. [480]
Q. It was. But the same practice was being ob-
served by the Southern Wine and Liquor Store;
wasn’t 1t? Age Yes sie
Q. That is they were understating their receipts
each day? A. Yes, sir.
Q. Did you have any discussion with Mr. Rau?
A. I did.
Q. During 1947 regarding the omissions in 1947?
A. That is when I told Mr. Rau that he had
better, the tax shown, instead of increasing the
Commussioner of Internal Revenue 451
(Testimony of Rose Goldstein. )
supplies and so forth, because he will be caught and
T said we will get all blamed for it on account of
him.
@. What did he say?
A. He said, ‘‘You go ahead the way I am tell-
ing you what to do,’”’ and he said, ‘‘The Govern-
ment will not catch up with me.’’ That is just the
words; Mr. Webb was there at the time.
The Court: When did that discussion take place ?
The Witness: When I was preparing the 1946
income tax.
The Court: When you were preparing the ’46
return ?
The Witness: Yes, sir, and showed him the rec-
ords according to my books.
The Coutt: That was in 19477 481]
A. Yes, sir.
The Court: Where did it take place?
The Witness: Right there in the Southern Hotel
lobby, in back of the office there, in back of the
desk.
The Court: In back of the office?
The Witness: Yes, sir.
Q. (By Mr. Gardner): Who else was present,
Miss Goldstein ?
A. My. Webb was there also.
The Court: Did you have any discussions with
respect to the year 1947, itself?
The Witness: The same thing I told him, also.
, Q. (By Mr. Gardner): Did you have more than
452 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
one discussion with him during the year, during
each of these years, regarding the income tax?
A. Qh, at different times I would tell him.
Q. At different times during each of the years?
AN ies; Sl:
@. Did you tell him more than once in 1947,
regarding the understatement of income, relative to
the French Cafe, and the Southern Wine and
Liquor Store?
A. Well, up until the hotel was demolished in
"47, After that I didn’t have nothing more to do
with that.
Q. Now, what did you do with the books and
records [482] of the French Cafe, and the Southern
Wine and Liquor Store, after the hotel was de-
molished ?
A. They were left there in the back office on the
shelf there with the files.
Q. They were left in the back office?
ee NCS, Sil.
Q. And did those records for the year 1947 show
understated receipts for the French Cafe and the
Southern Wine and Liquor Store?
A. Yes, sir.
Q. In other words, the income was understated,
wasn’t it? AD Yecwcin::
@. In substantial amounts? A. Yes, sir.
Q. And the understatement resulting, or the un-
derstatement that you had informed Mr.—the un-
derstatement that you had informed Mr. Rau as to
the year 1947, was the same understatement that
Commissioner of Internal Revenue 453
(Testimony of Rose Goldstein.)
was refiected in vour books and records; is that
correct ? A Yas, sir.
Q. Now, I would hke to get back to the pur-
chases, Mrs. Goldstein; according to these daily
slips, that is Exhibits 21, 22 and 23; show once
again Exhibit 21 as being illustrative of these other
exhibits, bv the time [483] we ect down to the de-
posit, I notice that the supplies and the pavouts
have already been deducted from the gross receipts;
is that correct? Ne ee cite
Q. And do I understand that in the year 1943
you put down, or recorded purchases in vour ree-
ords, maintained for the French Cafe?
A. Yes, sir.
Q. Now, the purchases have already been re-
moved once on those daily slips, haven’t they, Mrs.
Goldstein ? A. They have.
Q. Then any purchases that you record in your
books and records are false, aren't they?
Jo SNC OSPRSIG Es
Q. They are duplications? Eee CCC pes ile
Mr. Simpson: If your Honor please, I will be
indulging with the leading statements and making
conclusions in the interest of time, but this one I
will have to object to.
The Court: These past few questions were lead-
ing. Counsel will endeavor to
Mr. Gardner: Very well, your Honor.
The Court: not to lead the witness.
Mr. Gardner: Very well. [484]
Q. (By Mr. Gardner): Now, purchases for the
454 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
French Cafe as shown on these daily slips, Mrs.
Goldstein, I believe you have testified to the fact
that the purchases were removed prior to the time
that you reached a final figure, showing the day’s
mecei pis! A. Yes, sir.
Mr. Simpson: He is leading the witness again,
your Honor.
Mr. Gardner: If the Court please, she has al-
ready testified to that.
The Court: In a sense, Counsel is merely sum-
marizing what appears on the sheets.
My. Simpson: Yes, your Honor, but he is doing
so in a way that he is leading her now, because of
the way that he is doing it. He is now getting from
this witness a conclusion that the purchases that
she has on here have already been taken off prior
to the time that they were written down here.
The result will be from the testimony that he is
eliciting from her will be that they will be a dupli-
cate deduction claimed for supphes and purchases,
whereas we have already gotten from this witness
that they neutralized each other, as your Honor un-
derstood it.
The way he is approaching it now, he will have
the deductions coming out again, or that they should
be [485] taken out again.
The Court: J am not sure you are using the
word ‘‘purchases’’ in the same sense that the word
purchases or supplies was used in connection with
the so-called neutralizing items. Those neutralizing
items, as I understood it, related only to those
checks that were made out to cash in which rep-
Commissioner of Internal Revenite 455
(Testimony of Rose Goldstein.)
resented fictitious purchases, and not actual pur-
chases.
T understood Counsel’s last few questions to re-
late to actual purchases and not to the fictitious
purchases.
Myr. Simpson: JI may have misunderstood his
question, the purpose for it, now.
The Court: Do I understand your question, did
T misunderstand vour question ?
Mir, Gardner: No, your Honor.
The Court: The questions you were just putting
to this witness right now related to the actual pur-
chases, and not to the fictitious purchases that were
neutralized ?
My. Gardner: That is correct, your Honor.
Mr. Simpson: If your Honor please, I will stipu-
late that those purchases are on here, if that ts
what she is testifying to, within the journals.
Mr. Gardner: Will you stipulate that they are
in there twice, then? If you will stipulate they are
in there [486] twice, we can dispense with all this
testimony.
Mr. Simpson: That is the whole point, the way
I understood it is that he is now going to attempt
to establish through this witness that there are
double deductions for purchases; that is what I
objected to, and he was leading her to come to that
conclusion.
Mr. Gardner: That is exactly what I am going
to establish.
The Court: Counsel may continue.
456 static of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein. )
Mr. Gardner: Thank you, vour Honor.
Q. (By Mr. Gardner): Now, let’s go back to
this Just once again.
The Court: There has been some confusion and
I suggest you start over again.
Mr. Gardner: Very well, your Honor.
Q. (By Mr. Gardner): Referring once again
to Exhibit 21, under date of January 2, 1944-——
The Court: Is that the top sheet?
Mr. Gardner: That is the top sheet, your Honor.
Q@. (By Mr. Gardner): There is a summary
in the middle of the page, would you read that sum-
mary and explain what that summary consists of?
A. For January 2, 1944, the register reading
was [487] $552.11.
The Court: What did that represent?
The Witness: The full reading of the 24-hour
shift.
The Court: And those, that figure represents the
full receipts for that day, for that 24-hour period ?
The Witness: For that day, yes, sir. And then
in that reading, the $2.55 meal tickets was rung up,
which we deducted, which left the receipts $549.56.
The Court: Those are the actual cash receipts?
Phew itwess: | Wess:
The Court: For the dav?
The Witness: Yes, sir. And the payouts was
$32.57, which left the bank or deposit $516.99, less
the $10 that was taken out for Mr. Rau, Sr., which
left a balance of $506.99.
Then they added $150 for Mr. Rau, left the bal-
Commissioner of Internal Revenue 457
(Testimony of Rose Goldstein.)
ance of $356.99, which was listed as receipts for the
French Cafe.
The Court: You say they added $150 or sub-
tracted ?
The Witness: They subtracted, pardon me.
Q. (By Mr. Gardner): That was also for Mr.
Rau? A. Yes, sir.
Q. Now, going to the payouts here in the amount
of $32.57, would you once again pick up that figure
and put it [488] in purchases, would you state
whether or not you did that? A. I did.
Q. You did pick it up again?
A. Yes, sir.
Q. And you put it in purchases?
A. Yes, sir.
Q. Would that be placed in the book, Exhibit
U for identification ? A. It was.
Q. Now, would you state just how you arrived
at the purchase figures shown for the French Cafe,
as reflected in Exhibit U?
A. You are referring to 744?
Q. We are referring to "44. Let’s get to 744.
There you are. A. Well——
Q. Now, referring to the year 1944, in Exhibit
U, relating to the records of the French Cafe
A. Yes, sir.
Q. will you state how you received or where
you obtained the information to put your figures
down under purchases ?
A. Well, I would take the check books, mark
the check numbers and the amount, and credit my
458 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
bank and debit my purchases. At the end of the
month, I would take these [489] total cash receipts,
add up all the column cash paid.
Q. You are referring to these total cash re-
ceipts, you are referring to these, to Exhibit 21, are
you not? A. Yes, sir, and total all that.
Q. Total all that, all what, exactly what would
you total? A. All the cash payouts.
Q. All the pay, cash payouts?
A. Yes, and put the full amount under the cash
on that, and then debit to purchases.
Q. Debit that to purchases? A. Yesiecme
The Court: What amount would you include for
receipts ?
A. The deposit, $356.99 on that one.
The Court: So that for the date January 2, 1944,
you recorded as receipts the amount of $356.99?
The Witness: Ninety-nine cents.
The Court: And 99 cents. And you subtracted
in addition purchases of $32.57?
The Witness: Yes, sir.
Q. (By Mr. Gardner): Now, Miss Goldstein,
the net effect of this was to duplicate purchases as
to the French Cafe in the year 1944; is that cor-
rect? A. Yes, sir.
Q. Did you have any discussions with Mr. Rau
concerning [490] these duplications?
AN, liealitel
Q. What did Mr. Rau say?
A. I told him where he was taking off the pur-
chases twice, that he should have only taken them
Commissioner of Internal Revenue 459
(Testimony of Rose Goldstein.)
off once. He told me to go according to the way I
was instructed.
The Court: You testified as to what you did
with respect to the day of January 2, 1944. T would
hke Counsel to inquire as to whether similar prac-
tice was followed as to other davs or years, and,
if so, what days or years.
Q. (By Mr. Gardner): Regarding the duplica-
tion of purchases which vou have just testified, re-
garding the daily sheet for the year, or for the date
January 2, 1944, Exhibit 21, did you follow that
practice throughout the year 1944, Mrs. Goldstein ?
A IE ae
Q. And did you follow that practice throughout
the year 745? iN, iL @litel.
Q. Did you follow that practice up to May 6 of
1946? A. TI did.
Q. Did vou follow that practice in the year
1943?
A. To the best of my recollection, yes, I [491]
did.
Q. You did? A. Yes, sir.
Q. Did you follow that practice in the year
1942?
A. Well, I would have to look through the rec-
ords to see.
Q. All right. Would you look in the records,
please, Mis. Goldstein; you are now looking at Ex-
hibit U for identification; is that correct?
A. Yes, sir; *42.
Q. 19422 A. Not in 42.
460 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
Q. Not in 742? A. No, sir.
Q. This started in 1943 then?
A, Wes, sim
Q. Now, I will attempt to summarize your tes-
timony; would you listen closely, please?
Any purchases appearing in your records, that
is Exhibit U for identification, for the French
Cafe, are a duplication of purchases appearing on
the daily slips, and for which you have already
taken into account in computing imecome for the
French Cafe; is that correct? A. Yes, sir.
The Court: For what years, Mr. Gardner? [492]
Q. (By Mr. Gardner): Now, that applies to
each of the years 1943; is that correct, Mrs. Gold-
stein ?
A. I am looking up ’48 to be sure on that.
Oe aah:
Mr. Simpson: If your Honor please, may I
suggest a recess at this time while she is looking
up this information ?
The Court: Very well. There will be a recess.
(Short recess. )
Mr. Gardner: I would like to have this exhibit
marked for identification as Respondent’s next in
order.
The Clerk: Respondent’s Exhibit V marked for
identification.
(The document above referred to was marked
Respondent’s Exhibit V for identification. )
Commissioner of Internal Revenue 461
(Testimony of Rose Goldstein. )
Q. (By Mr. Gardner): Mrs. Goldstein, during
the recess that we just had, did I request you to
examine Exhibit U for identification, that is your
books and records relating to the French Cafe for
the years 1948, 1944, 1945 and 1946?
ie CS, Sir’,
Q. Relative to cash purchases shown in your
books and records, that is? A. Yes, sir.
Q. Exhibit U? [493] AS Wes) Sil
Q. Did you do that? A. I did.
Q. I hand you what has been marked Exhibit
V for identification, and referring to the year 1943,
would vou state the total amount of cash purchases
reflected in vour books and records for the French
Cafe, that is Exhibit U?
A. You mean from the beginning to the end?
Q. Just the total, 1f you please.
A. From 1943 it was $17,872.79.
Q. Now, those cash purchases in effect are a
duplication, are they not, Mrs. Goldstein ?
A. Yes, sir.
Q. In other words, purchases is increased by
that amount and you have already taken credit for
them previously, haven’t you? A. Yes, sir.
Q. Referring to the second page of Exhibit V,
for identification, for the year 1944, what did Ex-
hibit U reveal to be your total cash purchases for
that year? A. $24,140.70.
Q. And this is the same as in the year 1943, has
the effect of duplicating purchases to that extent;
is that correct ? A. Yes, sir. [494]
462 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
@. Now, would you refer to the cash purchases
for the year 1945, and state what the total cash
purchases shown in your records, Exhibit U, for
that year? Ay S27 one:
Q. This means that purchases are in effect du-
plicated to that extent for the year 1945; is that
correct ? Ves sir,
@. And would you state what the total cash
purchases reflected in Exhibit U, as to the year
1946, are? A. $1,969.91,
@. And here, as in the prior years, this means
that purchases are duplicated to that extent; is that
correct ? A. Yes, sir.
@. Now, all of these cash purchases relate to the
French Cafe; is that correct? A. Yes, sir.
Q@. In each of these years? A. Yes, sir.
My. Gardner: Offer in evidence Respondent’s
Exhibit V.
Mr. Simpson: No objection.
The Court: No objection.
(The document heretofore marked as Re-
spondent’s Exhibit V for identification, was
received in evidence.) [495]
Q. (By Mr. Gardner): Now, Mrs. Goldstein, I
believe vou testified that you knew Mr. Rau from
some time around 1935, on through 1947; is that
correct ? A. Yes, sir.
Q. Directing your attention to the year 1942,
what would you say his physical condition was dur-
ing that year? A. Okay.
Commissioner of Internal Revenue 463
(Testimony of Rose Goldstein.)
Q. Did he walk with a cane? AS Not then,
Or vNot then? ee NOs
Q. Now, in the year 1942, did he take an active
interest in the business? We Ycs, sir:
Q. Iam referring now to the French Cafe, the
Southern Wine and Liquor, especially, did he take
an interest in those businesses; were you able to
observe that?
A. Yes; he was there at all times.
Q. What was his mental condition, as a lay per-
son, what was your opinion ?
Mr. Simpson: Object, your Honor. This witness
is certainly not qualified to testify with respect to
Mr. Rau’s mental condition. We had that question
yesterday in [496] connection with the general
practitioner.
The Court: I will not receive any evidence from
this witness as an expert on Mr. Rau’s mental con-
dition, medically, but I will receive evidence from
her as to what she observed as a layman, with re-
spect to his alertness, and general responsiveness.
Mr. Gardner: Would you read the question,
please ?
(Question read.)
The Witness: To my recollection, he is like any
ordinary well man, taking care of his line of duty
and his businesses.
Q. (By Mr. Gardner): Did he have many busi-
nesses, Mrs. Goldstein ?
A. Well, he had those three, Southern Hotel,
French Cafe, and Southern Wine and Liquor.
464 Estate of Walter F. Rau, Sr., ete., vs.
(Testimony of Rose Goldstein.)
Q. Did you have any discussions with him re-
garding the books and records, the manner in which
you kept them and financial matters ?
A. Ob, yes. He knew everything that was
going on.
Q. Did he make it a practice to know every-
thing that was going on?
A. Qh, yes, sir. We had to show him the check
banks; we had to show him whatever was paid out,
and what was—what the transactions were.
Q. Did he further direct you as to how to pro-
ceed ? [497]
A. Yes, sir. I took all instructions direct from
him.
Q. Now, continuing through the period involved,
that is 1948, 1944, 1946 and 1947——
The Court: You have omitted 1945, I think.
Mr. Gardner: 1945, excuse me.
Q. (By Mr. Gardner): 1946 and 1947, did he
continue to keep a close watch over the books and
records maintained by you?
A. Well, in ’47 he was, he was living out at his
home.
@. I see.
A. But he would come down most—and then in
’46, I think, is when he moved out there.
Q. I see.
A. But he came down every day to find out
what was going on.
Q. Did it appear to you as his bookkeeper that
he knew exactly what was going on?
Commussioner of Internal Revenue 465
(Testimony of Rose Goldstein.)
A. Up until the time that I was taking care of
the books
The Court: I don’t understand that answer.
The Witness: Up until the time that I took care
of the books, and then he went into partnership
with Mr. Bender.
The Court: You mean during the time that you
kept [498] the books?
The Witness: Yes, sir.
The Court: And that terminated when ?
The Witness: When he went in partnership with
Mr. Phil Bender.
Q. (By Mr. Gardner): You are now referring
to the French Cafe, are you not?
A. Yes, sir.
Q. Did you continue to keep the books of the
Southern Wine and Liquor Store?
ee ledid.
Q. On up until the time that the Southern Hotel
was torn down? A. Yes, sir.
Q. Now, all during this period that you kept the
books and records for Mr. Rau, did he maintain
a close inspection of these records, and a closer
supervision of the records?
A. Yes, because when he came down, he would
check, go behind the desk, check the book, and then
find out what our payouts were.
Q. Now, in the year 1946, I believe, he had an
acute case of phlebitis; is that correct, or do you
recall ?
466 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
A. Well, that is when he had that Mrs. Dorsey
take [499] care of him then.
Q. Do you recall whether or not he could only
walk with a cane?
A. Well, he sometimes walked with a cane.
Q. Now, this is in 1946?
A. To my recollection he would walk with his
cane.
@. Did he have a wheel chair in 1946 or 19472
A. I have only seen the wheel chair once, when
we were at the hotel, where the nurse brought him
down to eat, and that is the only time I saw it
there. After the hotel—after—I mean, after we left
the hotel, in August 17, 1947, when they opened
up the French Cafe at Chester and 18th, that is
when I also saw him in a wheel chair.
Mr. Simpson: Can we establish, if your Honor
please, the first time that you saw the wheel chair
in what year was that, approximately what month?
Mr. Gardner: That is what I am trying to get
to, your Honor.
Mr. Simpson: Yes.
Q. (By Mr. Gardner): When was the first time
that you did see Mr. Rau in a wheel chair?
A. Well, I can’t recall the year, but it was after
Mrs. Dorsey took care of him.
She started taking care of him when? [500]
I couldn’t say.
Was it in—is it "46?
I ean’t recall what month, what year it was.
But it is your testimony that during all of
OrOre
Commissioner of Internal Revenue 467
(Testimony of Rose Goldstein.)
these vears on up and including the date of August
7, 1947, as long as you took care of the books and
records of the Southern Wine and Liquor Com-
pany, and the Southern Hotel, that Mir. Rau kept
a close watch on the books and records, and a close
supervision over the activities of these businesses ?
A. Yes, sir.
Q. Now, Mrs. Goldstein, von knew all during
these vears that Mr. Rau was understating his in-
come, didn’t you? A. I did.
Q. On his income tax returns? ALY edna:
Q. You knew that he understated his income in
substantial amounts in each of the returns filed for
the years 1942, 1943, 1944, 1945 and 1946, which
you prepared ? me Ves) sie
Q. And I believe your testimony is that you
discussed this with Mr. Rau on each occasion ?
ee die
Q. Did you subsequently take any steps to in-
form the Government of the understated [501] in-
come? A. I did.
Q. When did you do this, Miss Goldstein ?
A. Well, I don’t recall the year, but I took it
up with the Bakersfield income tax agent, Mr.
Branas.
Q. Mr. Branas? ee NCsimain
Q. Have you put in a claim for reward, Miss
Goldstein ? Ay “Niomsin:
Mr. Simpson: Can we get the date from this
witness, on the date she informed the Internal Rev-
enue Service? That hasn’t been established yet.
468 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
Mr. Gardner: No further questions, your [502]
Honor.
Mr. Simpson: Can we establish the date?
The Court: You may ask her.
Mr. Simpson: I will get it.
Mr. Gardner: Excuse me. Did I miss some-
thing?
Mr. Simpson: I just want to establish the date
she informed the Internal Revenue Service, never
did establish that.
Cross-Examination
By Mr. Simpson:
Q. In connection with the last question asked
of you by Counsel for the Respondent, as to the
advising of the Internal Revenue Service, the in-
correctness or falsity of Mr. Rau’s returns, will
you state for the record, please, the approximate
date on which you informed the Internal Revenue
Service of that condition ?
A. JI just don’t recall what year it was, whether
it was 748 or 749, or whether it was before. I can’t
reeall.
Q. Do you recall whether or not it was after
he had a stroke, or do you know that he had a
stroke in 19472
A. No, because I wasn’t up in his room, or at
home there when he had this stroke.
Q. Well, you went out to his home, though, did
you not?
Commissioner of Internal Revenue 469
(Testimony of Rose Goldstein. )
A. Onee in awhile I would visit there, while the
muse was there.
Q. Well, then, if he had a nuise, then you would
have known it in 1947, wouldn’t you, Mrs. Gold-
stem ?
A. Unless I was told he had one. [503]
Q. You went out to see him in his home. Let’s
establish that you did that in 1947?
A. I would go out there to visit him.
Q. Well then, if he had a stroke would you have
known about it when you went out to see him in
1947?
A. I don’t recall whether I would or not.
Q. Well, you knew the man, didn’t you?
A. Yes, I did.
@. And did he have a nurse out there at his
home with him?
A. He had his housekeeper, his aid nurse.
The Court: Did you go out to see him after the
hotel was demolished ?
A. I had gone out and seen him once in a while.
The Court: Even after the hotel was de-
molished ?
The Witness: Yes, sir.
The Court: Were you working for him at that
time ?
The Witness: No, sir.
The Court: You stopped?
The Witness: Pardon me. I was at the hotel
until the hotel was completely demolished, and took
everything out.
470 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
The Court: That was in, approximately in Au-
gsust of 1947?
The Witness: 747, yes, sir.
The Court: Did you work for him after that?
The Witness: Only—no, only to get to close the
books for the records of the Southern Hotel and
the Southern Wine and Liquor. [504]
Q. (By Mr. Simpson): Now, Miss Goldstein,
with respect to your duties, if I understand you cor-
rectly, and I don’t want to consume too much time
on this, you were the bookkeeper for all of the
years 42 through ’46, up until the time that the
partnership was formed by Mr. Rau and My, Ben-
der? A. Yes, sir.
Q. You prepared the returns for each one of
those years? A. Yes, sir.
Q. How many hours a day and it will also re-
late to the Southern Hotel, the Southern Wine and
Liquor Store, and the French Cafe, and you kept
the books ou those three businesses ?
A. Yes, sit.
Q. Did your duties also encompass those in con-
nection with the Edmund Hotel that Mr. Rau
owned ?
A. The only time is when he put in the system
there at the Edmund Hotel.
Q. Just answer the question. Did you have any-
thing to do with keeping the books?
Mr. Gardner: If the Court please——
Mr. Simpson: J want to know if she kept the
books for the Edmund Hotel.
Commissioner of Internal Revenue 471
(Testimony of Rose Goldstein.)
Q. (By Mr. Simpson): Did you?
A. No.
Q. Did you keep the books at the Sea Spray
Hotel? [505]
A. Only got the books from the manager.
Q. Did you keep the books on the Sea Spray
Court?
A. There was no books kept on that.
Q. You did not keep any books?
A. Only from records; that is all.
The Court: Did you have anything to do with
the records of that enterprise ?
The Witness: No, sir.
Q. (By Mr. Simpson): Now, we have your
duties relating to the bar, the French Cafe, and
the Southern Hotel. ee Yes esi:
Q. As far as keeping the books and records is
eoncerned; is that correct? A. Yes, sir.
@. How many hours a day would you devote
to that, Miss Goldstein ?
A. I didn’t specify any hours at all. Whenever
I had time off of my work, I would take care of
the books. I had no set hours.
Q. What did you receive as a salary as book-
keeper for the work that you did for Mr. Rau?
A. $10 a month.
Q. $10 a month? A. Yes, sir.
Q. For keeping the records for these three busi-
nesses for the years 1942 up to the time the part-
nership was formed in 1946? [506]
A. Yes, sir.
472 state of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
Q. Is that correct?
A. And he gave me my meals from the French
Cafe.
Q. And you had your meals? A. Yes, sir.
Q. How many meals, one?
A. Sometimes one, sometimes two.
Q. Were you satisfied with that arrangement of
$10 a month for that work?
A. Yes, because I had my desk there in the
lobby.
Q. Now, what desk did you have in the lobby?
A. My public stenographer desk.
Q. What else did you do other than being a
public stenographer?
A. Notary Public, mimeographing, telephone
service, and direct mail advertising; also, I was a
deputy registrar, and then I did some court re-
porting.
Q. Did you also prepare income tax returns?
A. I did, I did income taxes.
Q. Did you keep books and records for anyone
else, other than Mr. Rau? A. No, sise
Q. You were a bookkeeper for him only, and
for no one else? A. Yes, sir.
Q. Now, when Mr. Webb was away from the
hotel, did you take over his duties as clerk in the
hotel?
A. What part are you referring to, when he
was away [507] from the hotel?
Q. Well, during this period from 1942, up
through 1946, Mr. Webb has testified, you were in
Commissioner of Internal Revenue 473
(Testimony of Rose Goldstein.)
the courtroom, you heard him say that there were
times when he wasn’t there, and that somebody else
would velieve him. I think he mentioned you, on
occasion, that you did relieve him.
A. I relieved him during the day from 12:00
to 2:00, when he went up to take his nap.
Q. Mr. Webb took a nap?
A. Yes, sir. And then on Sunday, I—he would
work a short, J think I would relieve him, either
at 10:00 or 12:00 noon, and then the next Sunday,
I would relieve him all day.
Q. With respect to the office that you had, as
public stenographer, direct mail advertising, tele-
phone answering service, preparing income tax re-
turns, mimeographing, when did you begin that
business in Bakersfield, what year?
A. Oh, I can’t recall just when I started as
public stenographer.
Was it before 1942?
Oh, yes. Approximately——
All before 1942, well, before 1942?
Wes sit:
Was it as early as 1935?
No, sir. I don’t think so.
Was it some place between 1935 and 1940?
It was after the Judge was defeated in [508]
the J ustice Court when I was a deputy clerk there.
Q. Yes, but now let’s place the date on which
you began this business of yours as public stenog-
rapher, preparing income tax returns, mimeo-
graphing, direct mail advertising, telephone answer-
POPOPOPOS
474 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
ing service, was it sometime between 1935 and 1940
that you began that business?
A. Well, I can’t just recall what year it was,
before I moved over into the Southern Hotel.
Q. You can’t recall when you started the busi-
ness, or you can’t recall when you moved into the
Southern Hotel, which is it?
A. You are asking me when J started my public
stenographer business ?
Q. Yes.
A. See, and I can’t say whether it is between
1934 or 740, or the time I come to the Southern
Hotel.
Q. And you came to the Southern Hotel in
what year?
A. I think it was before 1942, or after Mr. Rau
took over the Southern Hotel.
Q. Before 1942, or after he took over the South-
ern Hotel?
A. Well, it was before 1942, whenever he took
over the Southern Hotel, it was either three or six
months after that when I moved into the Southern
Hotel lobby.
Q. Well, let me ask you the question this way:
did you have this business at the time you moved
into the Southern Hotel? A. Yes, sir. [509]
Q. You did? A. Yes, sir.
Q. Now, you had this particular business involy-
ing all of these different things in addition to that,
you took on the task of keeping books and records
of three different businesses involving hundreds of
Commissioner of Internal Revenue 4795
(Testimony of Rose Goldstein. )
thousands a vear, as you have testified to, for the
sum of $10 a month, in addition to the many duties
that you have related? A. Yes, sir.
Q. Would you please explain to the Court why
you wanted to take on these extra burdens involv-
ing this much money which you have certainly
- testified to, for the sum of $10 a month, when you
had a business of public stenography, direct mail
advertising, telephone answering service, mimeo-
graphing, and preparation of Federal income tax
returns; please explain to the Court why you took
on these, this task here of all these records for $10
a month?
A. Because that didn’t take much time to do.
Q. Ob, you didn’t spend but very little time on
it? A. Yes, sir.
Q. Devoted about how many hours a day to it?
A. IL can’t say.
Q. Well, you worked on them for years, ’42, ’48,
"4, ’5 and part of 1946; that is five years, you
spend a lot of time on those records, I would
assume.
A. Not when you make your daily records, when
you take them and put them in your journal. Some-
times I would [510] work, maybe every day, some-
times maybe once a week on them.
Q. Now, Miss Goldstein, this is Exhibit U. Miss
Goldstein, I show you Respondent’s Exhibit U for
identification, and ask you if that is the cash jour-
nal?
A. Yes, that is the cash check and cash journal.
476 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
Q. The tabs that you see on the end of these
sheets, French Cafe, January 1941, June 1946,
Southern Wine and Liquor, June 1942, August 1947,
is that in your handwriting ? A. No, sir.
Q. Did you put those tabs on there?
A. No, sir.
Q. Who put the tabs on?
A. I don’t know.
Q. Were they put—were they there when you
picked up these records, when you first got them?
A. Only in the courtroom.
Q. Only in the courtroom?
A. Yes, in the courtroom here.
Q. Now, there is also another one, Southern
Hotel January 1941 to September 1947, and you
kept the records, and these were all in your hand-
writing ? A. Yes, sir.
@. Were there any other records that you kept
for Mr. Rau, other than what I have shown you?
A. There was a cash book for the Southern
Hotel, showing the room receipts.
The Court: We will reconvene at two o’clock.
(Whereupon, the hearing in the above-en-
titled case was recessed at 12:00 o’clock, until
2:00 o’clock p.m. the same day.) [511]
Commissioner of Internal Revenue ATT
Afternoon Session—1:45 P.M.
ROSE GOLDSTEIN
resumed the stand, having been previously duly
sworn, was examined and testified further as fol-
lows:
Cross-Examination
(Continued)
byvelir. Simpson:
Q. Miss Goldstein, I think when we were finish-
ing up before noon recess, we discussed something
about the date on which you informed the Internal
Revenue Service of the falsification of information
in the books and records that you maintain, as well
as the income tax returns.
Would you please state again the name of the
person to whom you conveyed that information ?
A. My. Branas.
Q. How do you spell his last name?
A. Capital B-r-a-n-a-s.
Q. Do you know his first name?
Pee, Dido tenecalll 1 rieht mony.
Q. And he was in Bakersfield?
A. Yes, sir.
Q. Internal Revenue Service?
Dee Cs, Sim
Q. Was he a revenue agent, do you know?
A. Yes, sir.
Q. Do you know where he is now?
A. I don’t know if he still has his office in the
Haberfelde Building or not, but that is where he did
Meiieeit.
478 state of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein. )
Q. Is he still with the Internal Revenue Serv-
ice ? A. As far as I know. [512]
Q. Now, the month and the year in which you
informed the Internal Revenue Service?
A. Lam not—I don’t recall what the month or
the year, but it was between 1948 and 1949.
@. What prompted you at that time to inform
the Internal Revenue Service of the condition which
you knew had prevailed for many years prior to
that?
A. For the simple reason I know that it was
being done wrongly, and that if I didn’t report it
they would think that I was in cahoots with Mr.
Rau. And I wanted to protect myself.
Q. Could you not have done that by refusing to
prepare the income tax return for 1942?
A. J was in Mr. Rau’s employment at. the time.
Q. But you had a separate business of your own?
Xe WES. SIT,
Q. Therefore, please explain, if you will, why it
is that if you did prepare a false return for 1942,
knowing it to be false at the time you prepared
it—— A. I don’t know why I didn’t.
Q. You don’t know why you didn’t do something
about it then? A. Yes, sir.
Q. Well, can you state why you did not re-
fuse to file or prepare a false return that you knew
was false at that time?
A. I explained to Mr. Rau the conditions. He
told me to go right ahead and not worry. [513]
Q. If Mr. Rau had told you anything else that
Commissioner of Internal Revenue 479
(Testimony of Rose Goldstein. )
was wrong, you would have done it because you
were his employee? A. Naturally.
Q. Naturally. Now, you had this separate office
which you were a public stenographer, Notary Pub-
he, direct mail advertising, telephone answering
service, and other things. You were receiving $10 a
month to keep the books and records for the South-
ern Wine and Liquor, Southern Hotel, French
Cafe; what were you paid when you prepared My.
Rau’s income tax return for 1942?
A. No money for preparing any income tax.
Q. You were not paid for that?
A. No, sir.
Q. Were you paid for it in 1943?
A. No, sir.
Q. In 1944? APM@Nowsir.
Q. In 1945? A. No, sir.
Q. 1946? A. No, sir.
Q. Then the $10 that you received per month,
not only covered the keeping of the books for these
three different businesses, but also the preparation
and filing of a Federal income tax return?
ae, YES) Sir:
Q. You had a business of your own at that time?
A. Yes, sir, and [514]
[Clerk’s Memo: Two pages numbered 514.
Reporter’s error in numbering. |
Q. You want to say anything else? All I want
to know, you state you had that business at that
time ? A. Yes, sir.
Q. You did; thank you.
480 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein. )
Did you need this $10 a month to augment your
income ? A. No, sir.
Q. Would you care to state whether or not the
keeping of books and records for three different
businesses, preparation and filing of income tax re-
turn, calls for more salary than $10 a month?
A. I figured my desk space worth $100 or more,
in the hotel lobby, which was a very good location,
and gave me advertisement.
@. Did you consider that as income your own
income tax return?
A. I reported whatever I made.
Q. Well, the value of your office, do you con-
sider that to be income to you?
A. Not exactly.
Q. Not exactly, consider that, but you consider
yourself an expert bookkeeper?
A. No, not exactly.
Q. Do you consider vourself an expert in the
preparation of income tax returns?
A. According to my understanding.
Q. You are an expert? A. No, I am not.
Q. For preparation of returns?
A. No, sir.
Q. You prepared returns for other people?
pene lerdal
Q. Did you ever prepare an income tax return
for Mr. Harry Jackson? A. J don’t recall.
Q. Do you know whether or not Mr. Harry
Jackson operated a tire business in Bakersfield ?
Commissioner of Internal Revenue 481
(Testimony of Rose Goldstein.)
A. I remember of a Jackson Tire Company in
Bakersfield.
Q. You do not reeall whether or not you pre-
pared a return then for Mr. Harry Jackson?
A. No, I can’t recall it at this time.
Q. Do you know whether or not you were called
upon at a subsequent date in connection with an
income tax audit of a Mr. Harry Jackson?
A. No, I don’t reeall.
Q. Don’t recall? A, No, sit
Q. Now, coming down to the cash that was
taken according to Mr. Webb’s testimony, and your
own, from the French Cafe, the Southern Wine
and Liquor Bar, on those occasions when Mr. Webb
was not in the hotel, what did you do with the
money ?
A. It was returned over to Mr. Walter R. Rau,
Sr.
Q. Where was he?
A. In the hotel lobby in back of the desk [515]
there.
Q. In the back of the desk is where you turned
the money over to him?
A. Yes, sir, when he would be down there.
Q. And you handed him the cash?
A. He took the money and put it in the en-
velope in the back safe.
Q. Did you give him $10 and $25, or total of $35
on those days that Mr. Webb was not there, and
hand the $35 to Mr. Rau, personally ?
482 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein. )
A. I did not take it out of the cash; he took it,
himself.
@. Now, explain how Mr. Rau took the cash?
A. The cash was right there on the hotel desk,
and he came out. I showed him the figures, the
paper, he took the $10 out of the French Cafe, the
$25 out of Southern Wine and Liquor.
Q. And you showed him what information?
A. From those cash sheets.
Q. The French Cafe? A. Yes, sir.
Q. And I will show you Exhibit 21, and ask you,
January 2 is the date, here is a $10 figure sub-
tracted from $516.99, leaving a figure of $506.99;
that is correct, is it not?
A. According to the figures there.
Q. Now, there is an additional figure of $150
immediately below the $506.99. Now, is that the
sheet that you exhibited to Mr. Rau at the time you
handed him [516] the cash?
A. Not that date. If I wasn’t working at that
date, I couldn’t.
Q. Well, only for purpose of illustrating the
procedure that you followed on those occasions when
Mr. Webb was away. A. Yes, sir.
That is what you showed to Mr. Rau?
I did.
These daily sheets of the French Cafe?
Yes, sir.
You showed him the entries that were en-
tered there on the bottom ?
A. Before these entries was made, he took the
OPore
Commissioner of Internal Revenue 483
(Testimony of Rose Goldstein.)
$10. I put $10—he was the one who would take the
amount of that $150 or whatever he wanted; then
he would have me take, deduct it from the balance
and that was the deposit.
Q. My question is, you showed him the $10
figure, if you wrote it down, and the $150 figure, if
you wrote that down, that was made a record of
how much was taken out?
A. He told me to take the $10 off, then he would
tell me to take the $100 or whatever amount he
wanted to take off, which I showed on that paper.
Q. And then you actually took a pencil and put
the figures on that sheet?
A. Yes, while I was working.
Q. While you were working?
A. For Mr. Webb. [517]
Q. And you took that sheet on which you had
already written the $10 figure, or $150 figure, as
the case may be, and showed it to Mr. Rau?
AN Medic
@. And then at the same time you handed him
an equal amount of cash to correspond with the
amount that was shown on that daily slip?
A. The $10, plus the $150, or $160, which he took
out of that money, himself.
Q. So, you wrote the figures down on the French
Cafe daily sheet, on those occasions?
A. Those sheets, I never put them in the book.
Q. I know, but what I am trying to get from
you, you actually wrote the figure, yourself, in
pencil on the daily sheet of the French Cafe?
484 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
A. When I was working for Mr. Webb.
Q. When you were working for Mr. Webb.
A. When he was off. And I took his place, and
Mr. Rau would be there before any transaction
would be taken, any cash transaction would be
taken off of the cash sheets.
Q. So then you, as well as Mr. Webb, wrote the
figures on the daily sheets of the French Cafe?
A. According to Mr. Rau’s orders.
Q. Now, just a minute. Did you, yourself, per-
sonally write the figure down on the daily sheet of
the French Cafe?
A. Not without orders from Mr. Rau. [518]
Q. But you did it? A. Yes, sir.
@. And then you showed it to him?
A. Mr. Rau was there first, before that money
was taken, or put on those cash sheets. He was the
one that told me to show the $10, plus the amount
that was taken out on week ends.
Q. Would you please explain what you mean, he
was there first?
A. He was down there at the office, when he
came down, he wanted to know where the records
and the receipts, I would take those out, show it to
him right there, then he would tell me to take the
$10 out of the cash, and whatever amount he wanted
to take out on the larger amount.
Q. And then you made the note?
A. Then while he was still there, I deducted
them off of this here.
Commissioner of Internal Revenue 485
(Testimony of Rose Goldstein.)
Q. He observed you writing down $10, subtract-
ing it from the net proceeds of the receipts for that
day, and then if there was $150, he saw you write
down $150, and subtract that and keeping, in keep-
ing a record of it? A. Yes, sir.
Q. Now, did he make any comment to you when
he saw you keeping a report of the cheating?
A. No, he never made any comment.
Q. In other words, he saw you keeping the
record of his cheating on his records?
eee Yes, sir, folot
Q. You are a tax expert and a bookkeeper, and
you were keeping a daily record of this man’s
cheating; isn’t that correct now, Miss Goldstein?
A. When I first went over to the Southern
Hotel, I wasn’t doing much tax, income work, and
then when I started to take Mr. Webb’s job, those
instructions were given me what to do. But when
Mr. Webb was not there, and Mr. Rau came down,
he told me about taking the $10 off, plus the
amount that he wanted off on the larger amount.
Q. But now, I just want to have it for the
record that you did show him the daily sheet ex-
plaining to him that day by day you were keeping
a detailed account of his cheating?
A. I don’t know what he did with that money.
Q. Well, didn’t you prepare his income tax
returns ? Nee Niece. cit
Q. Well then, don’t you know what he did with
it?
486 Estate of Walter F. Rau, Sr., ete., vs.
(‘Lestimony of Rose Goldstein.)
A. Not the money he took out of his pocket. He
didn't turn it back into the businesses.
@. Well, you knew he didn’t report it as in-
come, though, did you not?
A. I know it. I notified him of it.
@. Well, didn’t he already know it?
A. Yes, sir, he knew about it, but he continued,
told me to continue on the way he had told me to
do. [520]
Q. Well then, on these occasions when you
talked to him, when vou were, exlibited to him the
income tax return that you prepared, and showed
it to him, you told him again that it was wrong;
is that it? A. I did.
Q. Well, didn’t he already know that it was
wrong ?
A. Yes, but he just laughed and shrugged his
shoulders.
Q. Please state why you had to tell him again, if
it was wrong, if you already had told him, you
alveady had informed him, as I understand your
testimony, from these daily sheets, or a detailed
accounting of this man’s cheating and he was well
aware of it, made no comment, and agreed that is
the way it should be done; is that so?
A. That is the orders from Mr. Rau, Sr.
Q. And in 1942, his mind was very alert, I be-
lieve you stated? A, Yes) sir.
Q. And it was also true all the way through
1947? A. Yes, sir.
Q. Very alert. Now, you showed this man who
Commissioner of Internal Revenue 487
(‘Testimony of Rose Goldstein. )
has an alert mind these records of his cheating,
and now I want to have it to establish it clearly
that he made no comment? [521]
es No, sir.
Q. When he saw it?
A. He knew what was going on, and he never
made any more comment on it.
Q. Thank you. Now, he was downstairs in the
hotel in the main lobby when you showed him the
daily cash sheets of the French Cafe?
A. When he would come down from his room,
downstairs, and he would always come into the
hotel lobby, into the hotel behind the desk of the
hotel lobby, where the office was, for the Southern
Hotel.
Q. And that he did every day?
A. Yes, sir.
Q. And did you see him look at these sheets
every day?
A. Well, when Mr. Webb was there, I had my
own work to do. I wasn’t paying any attention to
that, only when I was there.
Q. So, only on those occasions that you were
there, and Mr. Webb wasn’t? A. Yes, sir.
Q. How far away was your desk space from the
table on which these papers would be left?
A. From the Judge’s desk, to about to the end
of that fence there. [522]
Q. That is how far away your office was?
A. Yes, sir.
Q. You could see Mr. Rau, when you were at
your desk every day when Mr. Webb was there, and
488 Listate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
you were taking care of your own business, you saw
Mr. Rau come down and look over these daily
sheets of the French Cafe?
A. I didn’t say that I could see him do it. He
would be there. What they were doing, I don’t
know.
@. All right, thank you.
Now, did you ever take those daily sheets up to
Mr. Rau’s room in the hotel, upstairs?
A. I don’t recall whether I did or whether Mr.
Webb did.
Q. Can you state whether or not you ever did it,
yourself, personally ?
A. No, not to my knowledge.
Q. From whom did you receive the information
to put down on the daily sheets of the French Cafe?
A. Both Mr. Webb and Mr. Rau.
Q. Miss Goldstein, when Mr. Webb was away,
who handed you the daily cash sheets from the
French Cafe?
A. From the steward or the manager of the
French Cafe. Bring it in in a box.
Q. Ina box? A. With the money. [523]
Q. With the money?
A. Of the receipts taken from the register for
the day’s receipts.
Q. Did they have a cash register tape?
A. Yes, sir. It was right there in the box.
Q. What did you do with the cash register tape?
A. Left it there until Mr. Rau came downstairs.
I handed it to him with the cash sheet.
Commissioner of Internal Revenue 489
(Testimony of Rose Goldstein.)
Q. Now, you handed both the tapes and the
daily cash sheets ? Ay Nes Sir:
Q. To Mr Rauf A. Yes, sir.
Q. At the same time you handed him the cash?
A. It was in the cigar box there.
Q. Did you put it in the cigar box?
A. No, sir. It was handed to me from the French
Q. Ina cigar box? A. Yes, sir.
Q. Did you open the cigar box?
A. When Mr. Rau came down, that is when [
opened it.
Q. Then did you take the cash out of the agar
box, and hand it personally to Mr. Rau? [524]
A. Took it out and counted it in front of Mr.
Rau, show him what the balance was after the cash
payouts. Then he told me to take the $10 off of
that; then if it was on a Saturday or Sunday, or
holiday, I was working, he would tell me the
amount to take off of that balance.
Q. Now, let’s get right down to the cash, itself,
taken out of the cigar box, and did you hand it to
Mr. Rau personally ?
A. Hand what to Mr. Rau?
Q. The cash?
A. I gave it out, took the money out of the cigar
box, put it on the counter, counted while Mr. Rau
was there, less whatever the payout of the cash
payouts was, and the balance of that he told me to
take $10 out of that cash, then also whatever
490 Estate of Walter F. Rau, Sr., ete., vs.
(Testimony of Rose Goldstein.)
amount, if it was Saturday, Sunday or holiday, he
was the one that told the amount to take out.
Q. What was done with the remaining cash?
A. That was put back in the box, and left there.
When Mr. Webb come, he took care of that, made
the deposits, entered it in the daily year book. I
had nothing more to do with that.
@. You left the cash in the cigar box?
A. Yes, sir.
Q. And when Mr. Webb returned, you presumed,
but you didn’t see him do it, you presume that Mr.
Webb took [525] the cash out of the cigar box?
A. Whatever he does with it when he takes it
out to make up the deposit.
‘@. Did you ever make a deposit in the bank
account for Mr. Rau, during Mr. Webb’s absence?
A. I might have. I am not sure whether I did or
I didn’t. I might have done it while he was away
on his vacation, which I would have to make the
deposit ship up for him.
Q. You heard Mr. Webb testify that he was out
for about a week or ten days, couldn’t remember
the year, maybe 1944 or 1945, something like that,
he was in the Mercy Hospital. During that time,
did you make the deposits for Mr. Webb?
A. According to——
Q. For Mr. Rau.
A. When Mr. Rau was there, when those de-
posit slips were made up
Q. Did you make up the deposit slips for Mr.
Rau?
Commissioner of Internal Revenue 491
(Testimony of Rose Goldstein. )
A. Yes, sir, I had to do it when he told me to.
Q. Where were those deposit slips kept?
A. The blank ones?
Q. The deposit
A. They were kept right there where we kept
the check books in the drawer, right in front of the
hotel office. [526]
Q. Have vou seen those deposit slips at any time
since they were left at the hotel? A. No, sir.
Q. Did you have occasion to use those deposit
slips at all in your bookkeeping ? NO cite
Q. If money was deposited to his bank account,
what kind of a record did you make that day, when
Mr. Webb was away?
A. Away, when he was sick or on his vacation?
Q. Yes. A. Or week ends?
Q. Hither one.
A. Mr. Rau, I showed the book there, I kept all
those slips until Mr. Webb come back from his vaca-
tion. I never put them in the book.
Q. Now, the books and records that you kept,
where were they actually maintained in that hotel?
A. In the top drawer of the desk in the back
office.
Q. But not in your office where you conducted
your business ? A. No, sir.
Q. Miss Goldstein, do you recall revenue agent
Walter Slatter?
A. No, I don’t recall. You know, I don’t know
their [527] names much.
492 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
Q. Do you recall an examination of Mr. Rau’s
income tax returns for the years 1942, 1943, and
1944, in which there was an additional assessment
made against Mr. Rau?
A. No. He might be, but I just don’t recall it
at this time.
@. You don’t recall it? A. No,si
Q. Did you ever go upstairs to Mr. Rau’s room
with Mr. Slatter?
A. If I did, I might have, but I don’t recall. IL
might have gone up many times with different peo-
ple up to Mr. Rau’s room.
Q. You were the bookkeeper and you had the
books? A. Yes, sir.
@. Mr. Rau’s income tax returns and it would
show were audited by Mr. Walter Slatter. He filed
a report.
Did he make that adjustment without your
knowledge ?
A. What do you méan, he made that adjust-
ment without my knowledge?
Q. To increase Mr. Rau’s income tax liability
for those years?
A. If he was there, and he was up to see Mr.
Rau, and told Mr. Rau, naturally, he must have.
Q. You don’t recall Mr. Rau having to pay $20,-
000 [528] additional taxes?
A. I don’t remember.
Q. Now, if he wrote a check to the Collector of
Internal Revenue for $20,000, would you have made
the entry in the journal? may ING
Commissioner of Internal Revenue 493
(Testimony of Rose Goldstein.) .
@. Where would you make the entry, Miss Gold-
stein ?
Mr. Gardner: If the Court please, if Counsel
for Petitioner intends to introduce evidence at vari-
ance with anything she might say, I have no ob-
jection to this line of cross-examination; otherwise,
there is nothing in the record relating to any prior
investigation and this is going beyond the scope of
the direct.
And I object to these questions on that ground.
The Court: What is the purpose of this line of
inquiry, Mr. Simpson?
Mr. Simpson: The purpose is to determine the
extent to which this witness assisted the revenue
agent in determining the income for the years in
which adjustment was made, for the vears 1942,
coramc, 4.
Counsel for Respondent has made the objection.
I now eall upon him to produce the report filed by
Mr. Walter Slatter, Revenue Agent, on the assess-
ment of this, showing payment of additional income
taxes for the years 1942, 1943, and 1944. Then I can
pursue this line of questioning, because [529] I
have something very definite to establish. Tt is most
important to this case.
The Court: Is this a report that was given to
the taxpayer at the time?
Mr. Simpson: A statement of additional income
taxes due. The original report, IT presume, is on
file with the Commissioner of Internal Revenue.
494 Lisiate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
The Court: Is there a copy of the report given
to the taxpayer at the time?
Mr. Gardner: I believe it was, your Honor.
The Court: Have you seen it, Mr. Simpson?
Mr. Simpson: J have some correspondence in-
dicating that there was a report submitted in con-
nection with that. I have seen an entry made of
$20,000 for 1942, ’3 and *4, prepared by Mr. Walter
Slatter. IT have attempted to locate Mr. Slatter, and
he is out of the city for this week.
The Court: I don’t quite understand what the
purpose of your line of inquiry is.
Mr. Simpson: The purpose is this
The Court: With this witness.
Mr. Simpson: Yes. This witness had the books
and records during that examination of 1942, ’3
and *4, income tax lability, to which there was an
assessment made, and paid by Mr. Rau. [530]
Now, she had the books and records, and con-
sulted with Mr. Slatter. She must have at that time
exhibited to him these sheets for the French Cafe,
showing the system followed for those three vears,
for which he was conducting his examination.
The Court: You can follow that line of inquiry,
whether you have the agent’s report or not. How
is the agent’s report going to assist you in that?
Mr. Simpson: Because it would show the ad-
justments made to his income, and the basis for it.
The Court: Do you have a copy of the report,
Mr. Gardner?
Commissioner of Internal Revenue 495
(Testimony of Rose Goldstein.)
Mr. Gardner: J have seen a copy of that report.
I don’t know if I have one here, your Hono.
The Court: If you have it, I suggest vou make
it available to Petitioner’s Counsel.
Mr. Gardner: [| have here what is apparently
the original report of Walter J. Slatter, dated De-
cember 23, 1947, relating to tax habilties for the
vears 1943 and 1944, as well as the year 1942.
Mr. Simpson: I would like to inquire of Counsel
whether or not this is a complete report. I know
it is customary that an agent will sometimes write
a narrative, setting forth the persons with whom
he has discussed these adjustments, and if there is
any information in the possession [531] of the Com-
missioner, as to the persons with whom these ad-
justments were discussed.
T would lke to have that, too, because it may show
that they were discussed with this bookkeeper at the
time he made his examination.
Mr. Gardner: If the Court please, he has in his
hands now the copy that was furnished to the tax-
paver at that time, and I would object very much
to furnishing him with confidential information, or
confidential report of the agent, any confidential
communication he might make to his group chief.
If he wants to get the agent here, he can get him
here and he can testify.
The Court: Were you handed at the time—vwill
you hand Petitioner’s Counsel a complete copy of
the revenue agent’s report that was delivered to the
taxpayer?
496 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
Air, Gardner: That is my understanding, and
that was my intention, your Honor, to give him
everything that was given to the taxpayer.
The Court: Mz. Simpson, has that now in his
hands.
Mr. Gardner: Yes, your Honor.
The Court: Preceed, Mr. Simpson.
Mr. Simpson: Do you want this Petitioner’s Ex-
hibit—would you mark this Petitioner’s Exhibit
marked for identification? [532]
The Clerk: Petitioner’s Exhibit 27 marked for
identification.
(The document above referred to wasmarked
Petitioner’s Exhibit No. 27 for identification.)
@. (By Mr. Simpson): Miss Goldstein, I want
to show to you Petitioner’s Exhibit 27 for identifi-
cation, Which is a report of adjustments made to
Mr. Rau’s income tax liabilities for the years 1942,
1943, and 1944. It has the name, Examining Officer,
Walter Slatter, bearing date December 23, 1947;
name of the taxpayer, Walter F. Rau, Sr., and ask
you if that during the time that you were book-
keeper that you ever received a review or report
submitted to Mr. Rau in connection with the ad-
justments to his income tax lhabilities for these
years, similar in nature, or identical, if you will,
with this exhibit?
Now, take a look at that.
A. I don’t recall this, and I don’t know whether
any money was paid to the Collector of Internal
Commissioner of Internal Revenue 497
(Testimony of Rose Goldstein.)
Revenue, because I wasn’t with Mr. Rau in Decem-
ber of °47.
My. Simpson: If your Honor please, at this
time, I would like to offer into evidence Petitioner's
Exhibit 27, being the report of adjustment to Mr.
Rau’s income tax liability for 1942, 1948 and 1944.
The Court: For what purpose? [533]
Mr. Simpson: To establish that adjustment was
made in the amounts and for the years as indicated
in the report.
The Court: Made or proposed?
Mr. Simpson: Made.
The Court: What bearing does that have upon
the issues before us?
My. Simpson: The bearing that it has, as far as
we are concerned, is that the records which this
witness has testified to, as well as Mr. Webb, will
not coincide with the report made by the revenue
agents at that time.
Otherwise, having these records, this adjustment
could not have been made, your Honor. It must
have included the figures that we see on these daily
sheets of the French Cafe totaling much more, far
more than the adjustments actually made.
I would like to establish that, perhaps.
The Court: It is on the assumption that the
revenue agent made his audit upon the basis of
those sheets, or that the sheets were available to
him?
Mr. Simpson: Part of the records of the tax-
payer, yes, your Honor, that is true. It must be
498 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein. )
assumed that he had performed his job, or his work
in a proper manner, and that he did examine them.
The Court: You say so, but your statement that
he did so isn’t evidence. [534]
Mr. Simpson: But I assume when he made the
examination it was done in the proper manner.
The Court: JI can’t make any such assumption
at all, because if these sheets contain evidence of
falsification, I can’t assume for one moment that
the taxpayer made such falsified sheets available
to the—who was examining the matter. I can’t make
any such assumption as that.
IT will admit your exhibit, if you can make any-
thing out of it. I will let you try to do so, but I am
stating now that it doesn’t appear to prove anything
to me at all.
Mr. Simpson: Well, in that connection then, cer-
tainly request permission to keep the record open
until IT can have Mr. Slatter in for purpose of tak-
ing his deposition, or having him in here, when he
returns. No way for me to get him now, and then
T can establish it, your Honor. It is very important
to this petitioner’s case.
We feel that a grave injustice may occur unless
we are able to establish it.
Mr. Gardner: May I be heard, your Honor?
The Court: You may.
Mr. Gardner: This report to which we are re-
ferring now was prepared sometime ago. It has
been known to petitioners for a long time. If they
intended to have him here, intended to go into this
Commissioner of Internal Revenue 499
(Testimony of Rose Goldstein.)
mintier, thaw could have had ‘him for the trial
now. [535]
I object to the introduction of this document, on
the grounds that it is completely immaterial. There
has been no showing here that it ties into anything
in this case.
Further, the fact is that this revenue agent, for-
mer revenue agent, Slatter, could have been sub-
poenaed. This is not something new. This trial could
continue indefinitely, and I object strongly to the
record being kept open and left open to obtain the
testimony of revenue agent Slatter.
Mr. Sinpson: May I be heard now, your Honor?
Of course, I think it was natural for me to as-
sume that this person who was a bookeeper, being
present at the time this audit was being made,
would have had knowledge of the fact that he was
there, making the audit, and that these assessments
had been made. I did not realize that she would say
she doesn’t remember.
The Court: I am not satisfied, Mr. Simpson,
with the bona fides of your statement. If the agent
saw these sheets, the agent was the man from whom
to get that information. The notice of trial in this
case was sent out, according to the records before
me, on March 18 of this year, and the agent, him-
self, would be the most direct source to the evidence
as to whether such sheets were made available to
him. [536]
This witness testified that she was no longer
working for Mr. Rau at the time this agent’s re-
500 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
port was prepared. At the very best, you could get
only indirect evidence from this witness. The most
direct evidence would be from the agent.
And there has got to be some kind of orderly
conduct in the trial of the lawsuit. It is up to coun-
sel to present their evidence and present it at the
time the case is called for trial. If some new and
unsuspected development had arisen during the
course of the trial, that would justify keeping the
record open.
I think if justice required it, I would keep it
open, but in my judgment, no new and unsuspected
development has occurred. In my judgment, the
matter for which you ask me to keep the record
open is a matter that plainly should have been an-
ticipated at the time the case was being prepared for
trial.
Deposition, at best, is not a satisfactory way of
presenting evidence to a court. It has to be resorted
to at times, because there is no better way of han-
dling the matter. But the Court is now in session.
It is prepared to receive such evidence as the
parties have to present in the lawsuit.
I will not keep the record open beyond the period
that the Court is in session in Los Angeles. Now,
I do expect [537] this present session to last for
some, at least for some three or four weeks beyond
today, and I will keep the record open up to the end
of this session, and if you can bring in the wit-
ness, bring in Mr. Slatter, or whatever his name
Commissioner of Internal Revenue oO1
(Testimony of Rose Goldstein.)
is, during the period that the Court is in session,
I will receive his testimony, but not beyond that.
Mr. Simpson: All right, your Honor. Thank you.
Only one observation, I question the good faith
of my statement. I would lke to say something in
my regard.
Being a bookkeeper, I did assume, and I think
rightly so, that she would have knowledge of this ex-
amination which I know was conducted prior to the
time he submitted his report. It had to be in De-
cember of 1947, and for that reason, J] assumed that
this witness would be familiar with that audit and
examination, and not believe at that time that she
would not recall it.
And I honestly believe that she would have testi-
fied with respect to that audit, and I made those
representations in good faith.
Q. (By Mr. Simpson): Now, Miss Goldstein,
as far as you are concerned, you have no knowledge
of an audit that was made by Mr. Slatter—get that
in the record—while you were working for Mr.
Rau? A. Yes, sir. [538]
Q. My. Slatter never discussed this with you?
Ay 1 don't recall 1%
Q. With respect to the cash, itself, you never
saw Mr. Rau put the cash in his pocket that was
taken off and put down on a table in the lobby?
A. Not to my knowledge, because I made a
record on that shp of paper each day, and the
amount held out and put it in his key, where he
kept his key of his room. What he did with that,
502 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
whether he put it in the envelope, or whether he
put it in his pocket, I do not know.
Q. Then you do not know what happened to the
eash after you saw him take it at the table?
Za Noes
@. You have given considerable testimony and a
ereat deal has been stipulated with respect to the
manner in which purchases, cash purchases par-
ticularly, had been entered in the books and records.
You testified that you made those entries based
on information given to you, particularly as it re-
lates to the French Cafe on the daily sheets that
you recorded that information.
You have also given testimony with respect to
the automatic increasing of purchases for the years
1943, and 1944, on the face of the return.
Is it your testimony that Mr. Rau instructed
you [539] to raise the purchases in that amount
when you prepared the return ? A. Yes, sir.
@. In each case? A. Yes, sir.
@. Each year? A. Yes, sir
Q. You did that for 1944? A. Yes, sir.
Q. And for 1943? A. Wesrsu,
Q. Now, as a bookkeeper, what effect does that
have on inventories at the end of each one of those
years?
A. There was no inventory kept for the French
Cafe, or the hotel, and inventory on the Southern
Wine and Liquor. Whether inventory was on the
Southern Wine and Liquor Company, Southern
Wine and Liquor Company:
Commissioner of Internal Revenue 003
(Testimony of Rose Goldstein. )
Q. I don't believe I quite follow that answer.
It doesn’t make any difference on the Southern
Wine and Liquor.
A. I said, no inventory was ever kept for the
French Cafe, and there was inventory kept on the
Southern Wine and Liquor.
Q. When vou prepared the returns for each of
the years 1942 to 1946, My. Rau came downstairs,
did he, to the front desk, or did he go to your office,
your desk space? [540]
A. No, he never came to my desk space at all.
Q. Well, he was at the office in the lobby?
A. Yes, sir.
Q@. And Mr. Webb was there, and he saw the
returns that were being prepared and signed by
Mr. Rau?
A. When I presented them to Mr. Rau, for my
records, for my books, Mr. Rau would check the
figures. I told him the amount of tax he had to pay,
and he said to raise the purchases, or any other ex-
penses, so we wouldn’t have that amount of tax to
pay, or very little to pay.
And I did it on his orders, and I told him then,
“Mr. Rau, pay the tax, but you will have to pay
without raising your supplies and so forth.’’
Q. And Mr. Webb was there, and he heard the
comments ?
A. Mr. Webb was right there at the time, every
time I brought those figures to My. Rau.
Q. He knew what went in the income tax returns
each time? A. Yes, sir.
504 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
Q. Now, I think you testified that you devoted
very little of your time to keeping of the books,
making any audits, because you are devoting most
of your time to your other business?
A. Yes, sir. The only book work {f did was post
the cheeks, which didn’t take me long. I advised Mr.
Rau [541] to have the books audited and he says,
‘*No,’’ to go ahead the way I had been doing.
Q. Well, did he have to have someone audit
books when he had you?
A. Well, as a rule, people usually have their
books audited even if they do have a bookkeeper.
Q. Were you not able to make the audit, your-
self ? A. I didn’t want to.
Q. You didn’t want to make the audit?
A. No. I would rather have an outside auditor
to do it.
Q. So, each day that you saw these records com-
ing in, knowing them to be false, you then put down
those entries knowing them to be false, and re-
corded them as receipts?
A. According to Mr. Rau’s instructions.
Q. And the same thing holds true with the in-
come tax returns, themselves, when it came time to
increase the purchases you did that, too, yourself,
with your own pen or pencil?
A. On the orders of Mr. Rau.
Q. But you did it, yourself? A. Westen
Q. Then you signed those returns or at least one
of them, I believe
A. Here is one here, your Honor. [542]
Commissioner of Internal Reveniae 005
(‘Testimony of Rose Goldstein.)
Q. Miss Goldstein, I show you Exhibit 3E, being
the 1943 income tax return of Walter F. Rau, Sr.,
and ask if that is your signature as manager, or
person who prepared the return ? Ao hates:
Q. Now, when you prepared that, and signed
your name, you knew that it was false?
A. Yes, sir.
Q. And you were operating a separate business
all of your own at that time, and deliberately,
knowingly, knowing them to be false, signed it?
xe Yess sir:
@. Whenever there was anything that was wrong
about the books and records that vou kept, or about
the income tax returns, you never failed to discuss
it with Mr. Rau?
A. I did during the years from 1942 or 3, up
until the time I was taking care of the books, I
told Mr. Rau.
Q. And those discussions were held
A. In the office of the Southern Hotel.
Q. Did anyone else hear those discussions, other
than you or Mr. Webb?
A. Not that I know of. Because it wasn’t for
anybody else to hear.
Q. And it was a secret between you? [543]
A. Well, it wasn’t exactly secret. I thought that
was a personal matter between the employer and
the employees.
Q. Now, it is true that you had your own sep-
arate business, prepared a return, you knew to be
false, you signed it knowing it to be false.
506 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
Did you work on Saturdays, Sundays and holi-
days? A. Yes, sir.
Q. Was your business open on Saturdays, Sun-
days and holidays?
A. Sometimes it was open on Saturday. After a
while, Mr. Rau had told me to move down to the
hotel, and gave me a room, so I would be closer to
the hotel, and then when I would be up in my room,
they would call me down for notary or for a letter
to write, which I would come down, whether it be
on Saturday, Sundays, evenings, holidays, I don’t
know.
And during income tax, I worked night and day.
Q. Well, for how long a period of time would
that be? A. During the income tax time?
Q. That would be first of the year up to the
15th of March?
A. Yes, sir. And the last two weeks I wouldn’t
have any sleep at all, wouldn’t even go up to my
room at all. [544]
Q@. And were you making entries in the books
during the income tax time, when you were work-
ing night and day?
A. Sometimes I would, on Sunday, if it wasn’t
busy on my work. See, the first part of income
tax isn’t very rush. It is the last two weeks, or
possibly the last week, when there is a rush on in-
come tax.
Q. You go under the name of Miss Goldstein,
but you are married, are you not?
A. Yes, sir.
Commissioner of Internal Revenue 507
(Testimony of Rose Goldstein.)
Q. When were vou married?
A. Married in July 22, 1942.
Q. Were vou married in Bakersfield ?
A. No. £ was married in Pocatello, Idaho.
Q. What is vour present married name?
A. Longway. L-o-n-g-w-a-y.
Q. Is that Mr. Jack Longway?
A. Yes, sir.
Q. Is Mr. Jack Longway, was he in the service
prior to vour marriage?
A. No, sir. He went in a month after we were
married.
Q. A month after you were married ?
emeees,. Slit
Q. And then when did he leave the service?
A. 1945. [545]
Q. 1945? A. Yes, sir.
Q. Did you go into business with Mr. Longway
after he came out of the service?
A. Istill have my same business. q
Q. You continued your separate business ?
A. Yes, sir.
Q. Does your husband have a separate business
apart from you?
A. Oh, after a year, or two, after he came back
from the service.
Q. And what kind of business does he have?
A. That was a cafe business.
Q. Did he buy that business?
A. He got it for a small amount of money, as it
was a rundown business, and he took it over.
508 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
Q. Do you know how much it cost him?
A. I don’t know. He handled that himself.
Q. Did it come a time when you and your hus-
band bought a home?
A. After he come out of the service, we got a—
he got a G. I. loan.
Q. Did you pay for it?
A. We were making monthly payments on it.
Q. How much did you pay down on the
home? [546]
A. I can’t recall that. He handled all that him-
self.
Q. What year did you buy your home?
A. Ican’t reeall that either; might have been in
1946 or 47, I can’t say.
Q. Can you state whether or not you made the
down payment, yourself, at this time?
A. No, sir.
Q. Can you state whether or not your husband
made that down payment?
A. I don’t recall where the down payment was
made, or when it was made; whether I was with
him when it was made, or not, I can’t say.
Q. What is the title that you have to the house,
is it In your name?
A. It is in both our names, as joint tenants.
Q. Joint tenants? A. Yes, sir.
Q. If you paid for that, would you recall draw-
ing a check to your account in payment for that
home?
A. I had a savings account of all his money
Commissioner of Internal Revenue 509
(Testimony of Rose Goldstein.)
that he sent me on this, what they sent to the wives.
T put it in a savings account. I also received some
bonds from my uncle that died.
Q. How much did that amount to?
A. The amount of the bonds is $1,350. And it
was [547] in my maiden name. I went to the Bank
of America and I think Mr. Cash from the Bank
of America, I think he was in that department at
that time. I am not sure.
Q. When did you cash the bonds?
A. When my husband came home and he wanted
to have some money. He needed for the business and
the home, and he also had $5,000 worth of bonds,
himself.
Q. He had $5,000 worth of bonds?
A. Yes, sir.
Q. Do you know when he bought them?
A. No, I do not. Because I was only married to
him one month before he went into the service, so I
didn’t know anything of his personal affairs.
Q. And you bought your home, did you pay cur-
rency as a down payment, or did you issue a check ?
A. I don’t remember whether it was currency
or whether it was out of the savings account, that
money was taken, I can’t recall. Been a long time
ago.
Q. Other than your home, do you own any other
property in and around Bakersfield ?
A. Yes. We have a home on 30th Street.
Q. Except for your home, do you own anything
else? A. Yes, sir. No, sir.
510 state of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein. )
Q. Do you own any unimproved lots?
A. The one next to the home we are at now. [548]
Q. How much did you pay for that?
A. $900.
@. Do you know when you purchased it?
A. I ean’t recall that. It would be on record.
@. Do you have an interest in any business in
Bakersfield ?
A. My husband has a wholesale business.
Q. What kind of a wholesale business ?
A. Groceries.
Q. When did he get into that?
A. Well, while he still had the restaurant busi-
ness, he went in partners with another fellow.
Q. Was he in one restaurant business, only one?
A. No, sir, he had two.
Q. He had two? A... Yes, sim
Q. Do you know their names?
A. One was the Mellody Cafe on 99th Highway ;
the other was the Coffee Cup on 99th Highway.
Q. And also he had an interest in wholesale
grocery ? A. Tejon Wholesale Groceries.
Q. Tejon? A. 'T-e-j-o-n.
Q. Was any of the money used out of what you
had saved for him to go into those three busi-
nesses? [549]
A. Yes, sir. Because I didn’t have much expense
at all, and I put that money in my savings.
Q. And then
The Court: What money?
The Witness: What I would make in my busi-
Commissioner of Internal Revenue oll
(Testimony of Rose Goldstein.)
ness, and then my bond money, and the money he
sent me while he was in the service, allotment
checks, that is what it was.
Q. (By Mi. Simpson): What was his rating in
the service?
A. When he went 1n, he went in as a third-class
cook. When he came out, he came out commissary
steward.
@. Commissary steward? ae Mes asia,
Q. Do you recall now approximately how much
allotment checks would amount to per month ?
A. Sometimes $40, sometimes $50 a month, all
depends on how much he received.
Q. And for how many years was he in the
service ? A. From 1942 up till 1945.
Q. He was in for three years?
A. Approximately three years, or three and a
half, I am not sure.
Q. He sent home approximately $480 a year?
A. He would, and then he would send me more
home, outside of the allotment checks. [550]
Q. In addition to that, he was sending you more
money ? A. Yes, sir.
Q. I think, as a matter of simple arithmetic,
he sent during that three year period $1440 to you?
A. He might have; yes, sir.
Q. Is it your testimony he also saved other
money out of that so that when he came out of the
service he had $5,000?
A. Out of what money?
Q. Out of what he received in his pay?
512 Listate of Walter F. Rau, 8r., ete., vs.
(‘Testimony of Rose Goldstein.)
A. Whatever money I put in the savings bank,
I kept it there for him, which I felt was his money,
not mine.
Q. But didn’t you state, Miss Goldstein, that he
had $5,000 of his own money ?
A. $5,000: in bonds.
Q. That is his money, though?
A. Well, it was in bonds.
The Court: Was that in addition to what was
in the savings bank ?
The Witness: Yes, sir; yes, sir.
@. (By Mr. Simpson): In addition to that?
A. Then he had a thousand or maybe $1100 cur-
reney when we got a safe deposit box. [551]
@. Where is the safety deposit box?
A. At the Bank of America.
Q. Did you both have authority to go in that
safety deposit box? A. Yes, sir, we did.
Q. I ask what did you keep in that safety
deposit box?
A. Just insurance policies, and stubs of money
that he sent home to his mother.
@. Did you keep any cash in that safety deposit
box?
A. Only that money I told you about.
Q. Miss Goldstein, can you state now approxi-
mately how much income you reported in 1946?
A. Not unless I have my records.
Q. Can you state how much you reported in
1947?
Commissioner of Internal Revenue 513
(Testimony of Rose Goldstein.)
A. I was in the hospital in 746. That is when my
accident was, in ’46.
Q. What accident was that Miss Goldstein?
A. In an elevator, went down, and I was in it
and broke both my legs.
@. In 1946? Aa) Yessir,
Q. What month was that? A. July. [552]
Q. July? A. 24, 1946.
Mr. Gardner: May I interrupt. I think we have
some confusion here.
As I understood it, your elevator accident took
place in 1956; is that correct?
The Witness: I beg your pardon, 756, yes. Hx-
cuse me.
Q. (By Mx. Simpson): In 1946, Miss Goldstein
what was the income that you reported, approxi-
mately ?
A. I couldn’t recall now. I would have to see
my records.
Q. Was it as much as $10,000?
Ay cant say.
Q. Have you ever reported during 1942 to 1947,
as much income as $10,000 a year?
A. J ean’t say, unless I saw the records, how
much I reported.
You cannot recall how much you reported?
No, sir.
On your own income tax return?
No, sir.
. Did you prepare your own return, Miss
Goldstein ? Ae NO, sii.
OProre
514 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
Q. Who prepared it for you? [553]
A. I had Mr. Higby prepare it, and I had Mr.
Ensign that worked for D. L. Pratt, and Mr. Pratt.
Q. Now then, you were a tax expert but you
permitted, you had somebody else prepare your own
returns? A. Yes, sir.
@. Was that true for 1942?
A. I ean’t recall whether I did it or somebody
else, outside those three.
@. Did you ever prepare your own income tax
return for any of the years from 1942 through
1947?
A. I would have to see the records on that.
Q. Isn’t—you cannot recall whether or not you
prepared your own return? A. No, sir.
Q. Further, it is your testimony that you do not
remember how much you reported as income during
any of those years, 1942 to 1947, inclusive?
A. Not unless I saw the records.
Q. Miss Goldstein, do you have a bank account?
A. Yes, sir.
Q. Where do you have it?
A. I have a checking account in the Bank of
America.
Q. Is that your personal bank account?
A. I have a personal bank account. I have a
business bank account, and I have for my rentals,
a bank [554] account.
Q. Let’s identify the years, specific, in 1942, did
you have a personal bank account in the Bank of
America ?
Commissioner of Internal Revenue O15
(Testimony of Rose Goldstein.)
A. I don’t remember when I first took out my
checking account at the Bank of America. I don’t
remember when I started.
Q. Did you have one in 1943?
A. I don't remember that either.
Q. Did you have one in 1944?
A. I don’t remember that either.
Q. Did you have one in 1945?
A. I don’t remember that either.
Q. Did you have one in 1946?
A. I don’t remember that either.
Q. Did you have one in 1947? Al el did:
Q. Did you have a personal bank account in
1947 in the Bank of America? Ae Yes. sites
Q. Did you have a business bank account?
A. Yes, sir.
Q. How do you distinguish between those two
bank accounts?
A. My business would be Rose Goldstein, trustee,
Rose Longway, agent, and my business—I mean,
my business [555] would be Rose Goldstein, trustee ;
my personal would be Rose Goldstein, agent; and
my rentals—I mean, Rose Longway, agent; and my
rentals would be Rose Longway, trustee.
Q. You said them so fast, I couldn’t quite fol-
low you. Would the Rose Longway, agent, be the
personal account? A. Yes, sir.
The Court: Off the record.
There will be a short recess.
(Short recess. )
516 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
Mr. Simpson: Would you mark this, these sheets
for identification as Petitioner’s next in order?
The Clerk: Petitioner’s Exhibit No. 28 marked
for identification.
(The document above referred to was marked
Petitioner’s Exhibit No. 28 for identification.)
Q. (By Mr. Simpson): Miss Goldstein, I show
you Petitioner’s Exhibit 28 for identification, being
the bank acocunt that you testified to and name of
Rose Longway, agent, Bank of America, and ask you
to look at that, please, if you will? A. Yes.
@. That is the bank statement for the calendar
year 1947, Will you see, yourself, as to that, please?
A. Yes, sir.
Q. Now, I call your attention specifically to two
deposits [556] in the amount of $1500 on August 8,
1947, and also to one of September 19, 1947, in the
amount of $2,209.55, and ask if you can identify
the source of those two deposits?
A. From my income tax service, where I draw
it out of my business to put in that, or I divide so
much of my business and so much of my personal,
so I would have something to work on.
Q. This came from
A. Income tax service.
Q. Income tax service? A. Yes, sir.
Q. You prepared returns during the tax period
from January up to March 15 of the year?
A. In ’47, we went to April 15.
Q. Well, these deposits are in, both in August
re
i
a
Commissioner of Internal Revenue ol
(‘Testimony of Rose Goldstein.)
and September. A. Yes, sim
Q. Now, I ask you whether or not did you hold
those receipts that you received for Income tax serv-
ice in April until September before you deposited
them into your bank account?
A. Yes. I made duplicate deposit slips out of
every deposit I made, and then when I drew out any
mouey, I drew it out of my business and put it into
my personal.
Q. These deposits were first put into your busi-
ness [557] account?
A. Drawing out and put into my personal ac-
count.
@. Into your personal account?
A. Yes, sir.
Q. Now, I call your attention to a deposit on
March 29 of 1947, in the amount of $1,902.28, and
ask if you can identify or explain the source of
those funds?
A. The same thing, same amounts. Now, whether
I put that amount in before putting it in my busi-
ness, or just making a deposit to put to my personal
account—that is the only way [I would for any per-
sonal account, my personal account.
Q. So, a deposit that was made on March 29 of
’47, you deposited directly to your personal account ?
A. TI think so. I am not sure whether I took it
out of my business, and put in that, or whether I
did it direct to my
Q. May I eall attention to deposit of March 4,
1947, amount of $500? A. Yes, sir.
518 Lisiate of Walier F. Rau, Sr., ete., vs.
(Testimony of Rose Goldstein. )
@. And ask if you ean identify and explain the
souree of those funds? A. Yes, sin
Mr. Simpson: If your Honor please, at this time,
I would like to offer in evidence the bank state-
ments just [558] identified by this witness.
Mr. Gardner: I would like to note an objection
for the record, to the effect that this, at this point
at least, the document desired to be introduced is
immaterial on any issue in this ease.
The Court: It will be admitted.
(The document heretofore marked for iden-
tification as Petitioner’s Exhibit No. 28 was
received in evidence.)
Mr. Simpson: Please mark a group of 13 sheets
as Petitioner’s Exhibit for identification next in
order.
The Clerk: Petitioner’s Exhibit No. 29 marked
for identification.
(The documents above referred to were
marked Petitioner’s Exhibit No. 29 for identi-
fication. )
Q. (By Mr. Simpson): Miss Goldstein, I show
you Petitioner’s Exhibit 29 for identification, in
the—being bank statement of Rose Longway, your
personal account in the Bank of America for the
year 1946, would you examine that and satisfy your-
self, that it covers the year 1946?
A. Yes, sir.
Q. Speak up so he can get it. A. Yes, sir.
Commissioner of Internal Revenue O19
(Testimony of Rose Goldstein.)
Q. Miss Goldstein, I eall your attention to a
deposit [559] in the amount of $3,642.88, on the
date of January 31, 1946, in the personal banking
account in the Bank of America, and ask you to
explain the source of those funds, 1f you will?
A. That is also from income tax service.
Q. From income tax service? A. Mes, sir
Q. You deposited directly to your personal ac-
count?
A. Jean’t reeall whether I took it from my busi-
ness and put it in that, or whether directly.
Q. I direct your attention to deposit on April 2,
1946, in the amount of $1,000, and ask vou to ex-
plain the source of the funds for that deposit, if
you will? A. Same thing.
Q. I direct your attention to the deposit on May
9, 1946, in the amount of $1,150, and ask you to ex-
plain the source of that, those, if you can?
A. Same thing.
Q. Directing your attention to the deposit in the
amount of $800 on June 10, 1946, and ask you to
explain the source of that? A. Same thing.
Q. From your business? A. Yes.
Q. Direct your attention to deposit on June 17,
1946, [560] in the amount of $400 and ask you to
explain the source of that deposit?
A. Same thing.
Q. From the business? io Yes, cir.
Q. From your business? TNS UES 5 SUB.
Q. Direct your attention to deposit of $300 on
August 6, 1946, and ask you to explain the source
520 state of Walter F. Rau, Sr., ete., vs.
(‘Testimony of Rose Goldstein. )
of that deposit? A. Same thing.
Q. Direct your attention to deposit of August
30, 1946, in the amount of $240, and ask you to
explain the source of that deposit?
A. I would take, if I didn’t deposit all my in-
come tax to the business, I would put it to my
personal.
Q. Lask you to look at deposit on September 16
in the amount of $512.79. A. Same thing.
Q. From your business? A. Yes, sir.
Q. Also on September 20, 1946, deposit in the
amount of $600? A. Yes, sir.
Q. Also from your business? [561]
A Yessir:
Q. Deposit on October 14, 1946, in the amount
of $1,680, and ask you to explain the source of those
funds? A. Same thing.
Mr. Simpson: If your Honor please, at this time
I would like to offer in evidence the bank statements
for the year 1946, just testified to by this witness.
Mr. Gardner: I would like to note for the record
an objection to the introduction of this evidence,
on the grounds that it is immaterial at this point.
The Court: Overruled. Admitted.
(The document heretofore marked for identi-
fication as Petitioner’s Exhibit No. 29, was re-
ceived in evidence.)
Mr. Simpson: Please mark the next sheets of
eleven pages, as Petitioner’s Exhibit next in order.
io)
iA
Commissioner of Internal Revenue 5
(Testimony of Rose Goldstein.)
The Clerk: Petitioner’s Exhibit No. 30 for iden-
tification.
(The documents above teferred to were
marked Petitioner’s Exhibit No. 30 for identi-
fication. )
Q. (By Mr. Simpson): Miss Goldstein, I hand
you Petitioner’s Exhibit 30 for identification, your
bank account in vour personal account in the Bank
of America, for the year 1945, and ask [562] you to
look at the sheets and satisfy yourself that it covers
1945 ? Ay Nes. sir,
@. It covers the year 1945? A. Yes sim
Q. I direct your attention to the deposit on May
17, 1945, in the amount of $604, and ask you to
explain the source of the funds?
A. Well, I don’t remember now whether I had
a Rose Goldstein, trustee, for my business on that
day. If I did, I took it from my income tax and
transferred it to my personal; on all those others,
the same thing.
Q. Is it your testimony then, Miss Goldstein,
that the rest of the deposits appearing in this ex-
hibit for the calendar year 1945, all came from
your business ? A. Yes, sir.
Mr. Simpson: If your Honor please, at this time
T wish to offer in evidence Petitioner’s Exhibit 30
for identification, identified by the witness.
Mr. Gardner: Note for the record an objection
to this exhibit at this time, on the grounds it is
immaterial.
b22 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein. )
The Court: It is admitted.
(The document heretofore marked for iden-
tification as Petitioner’s Exhibit No. 30 was
received in evidence.) [563]
Mr. Simpson: Please mark these 12 sheets as
Petitioner’s Exhibit next in order.
The Clerk: Petitioner’s Exhibit 31 marked for
identification.
(The documents above referred to were
marked Petitioner’s Exhibit No. 31 for identi-
fication.)
The Clerk: Petitioner’s Exhibit No. 32 marked
for identification.
(The document above referred to was marked
Petitioner’s Exhibit No. 32 for identification.)
Q. (By Mr. Simpson): Miss Goldstein, I hand
you Petitioner’s Exhibit 31 for identification, being
the personal bank account in the Bank of America
for 1944, consisting of 12 sheets, and ask you to
examine it and satisfy yourself that it covers the
calendar year 1944?
A. The same procedure was done on that also.
Q. I direct your attention to deposit in the
amount of $900 on July 11, 1944, and ask you if
that was from your business ? A. Yes, sir.
Q. Is it your testimony that the rest of the de-
posits appearing in this exhibit also came from
your business ? A. As far as I know, yes, sir.
Commissioner of Internal Revenue O23
(Testimony of Rose Goldstein. )
Mr. Simpson: If your Honor please, I offer in
evidence [564] Petitioner’s Exhibit 31 just testified
to.
The Court: Admitted.
Mv. Gardner: I would lke to note for the record
the same objection to the previous exlnbits.
The Court: The objection is overruled.
(The document heretofore marked for iden-
tification as Petitioner’s Exhibit No. 31 was
received in evidence. )
Q. (By Mr. Simpson): Miss Goldstein, I show
you Petitioner’s Exhibit 32 for identification, being
your bank account in the Bank of America for the
year 1943, and ask you to examine these 12 sheets,
and satisfy yourself that they cover the year 1943?
A. It would be the same procedure.
@. You are satisfied that they cover your per-
sonal bank account in the Bank of America for
1943, are you not? A. Yes, sir.
Q. I direct your attention to several deposits,
first of which is $946.10 dated March 9, 1943.
A. That would be from my income tax, same
Seth Ghat.
Q. And deposit of $1297.23 on March 17?
A. Yes, sir.
Q. Deposit of $468.30 on March 15? [565]
A. Yes, sir.
Q. Deposit of $559.94 on September 23, 1943?
A. Yes, sir.
Mr. Simpson: Your Honor, I offer at the time
O24 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
Petitioner’s Exhibit 32 just testified to by the wit-
ness.
Mr. Gardner: Same objection to this exhibit as
previous, your Honor.
The Court: It will be admitted.
(The document heretofore marked Petition-
er’s Exhibit 32 for identification, was received
in evidence. )
Q. (By Mr. Simpson): Miss Goldstein, you tes-
tified that your husband’s name was Jack Longway?
A. Yes, sir.
Q. Was he ever a night clerk at the Southern
Hotel? A. No, sir.
Q. Did he ever work at the Southern Hotel?
A. No, sir.
Q. Under the laws of the State of California,
which is a community property law state, you have
a vested interest in his bank account. I believe the
Court can take judicial of that fact.
A. I had a what?
@. A vested interest in your husband’s bank
account, [566] one-half of it belongs to you.
A. No, suv. He is the one that signs his own
personal checks. I have nothing to do with it, if that
is what you mean.
The Court: The Court realizes that California is
a community property state. However, the Court
also recognizes that in a community property state,
there is such thing as separate property, and com-
munity property, and that there is a comprehensive
cn
ee)
Or
Commissioner of Internal Revenue
(‘Testimony of Rose Goldstein.)
set of laws to deal with what is community property
and what is separate property.
Mr. Simpson: Miss Goldstein, then I am sorry.
I didn’t know whether you were through. Are vou
through ?
The Court: Yes.
Q. (By Mr. Simpson): Miss Goldstein, are you
familar with the deposits that your husband has
made in his personal bank account?
A. No, sir.
Q. Do you know where he maintains his per-
sonal bank account?
A. He used to have it—is it Security First Na-
tional and the Bank of America.
Q. He had two bank accounts?
A. Before he transferred over to the Bank of
America.
Q. And he had his personal bank account in the
Bank [567] of America in Bakersfield, did he not?
A. Yes, sir.
Q. Did you ever make a deposit in his personal
bank account?
A. He gave me the deposit slip with the money,
and I, when I would make my deposit, I would
deposit in his, and he would put it in his book, had
nothing to do with mine.
Mr. Simpson: This is Petitioner’s Exhibit next
in order, consisting of 11 sheets.
The Clerk: Petitioner’s Exhibit No. 33 marked
for identification.
526 Esiate of Walter F. Rau, Sr., cte., vs.
(Testimony of Rose Goldstein.)
(The document above referred to was marked
Petitioner’s Exhibit No. 33 for identification. )
Q. (By Mr. Simpson): Miss Goldstein, I show
you Petitioner’s Exhibit 33 for identification, being
the bank account of Jack Longway in the Bank of
America for 1946. I ask you to examine it.
A. Your Honor, I cannot. I don’t know anything
about my husband’s bank account.
Q. Well, you made deposits in that bank ac-
count ? A. Yes.
Q. And I want to ask you if you can identify
some of these deposits. [568]
A. T eannot, because I don’t know which ones I
would deposit, or which ones he did.
Q. I direct your attention to deposit of March
15, see if I can refresh your recollection.
A. I don’t know anything about it.
Q. $3,932.61, March 15, 1946, and ask if you can
identify that deposit ?
A. I ean’t; I can’t identify any deposits.
Mr. Gardner: If the Court please, I am going to
object to this line of questioning, regarding this
document which relates to the bank account of one
Jack Longway. We have had no identification of the
statements, the document from which he is ques-
tioning, and further than that, the entire line of
questioning is immaterial as to any issue involved
in this case.
The Court: Counsel may interrogate.
Q. (By Mr. Simpson): Miss Goldstein, I want
Commissioner of Internal Revenue O27
(‘Testimony of Rose Goldstein.)
you to look at this bank statement, perhaps you can
refresh your recollection.
There is a deposit $500 on March 7, 1946, are you
able to identify that deposit?
A. No, I can’t identify any of those deposits.
Q. Axe you able to identify deposit of $500 on
April 2? Ae No.l cannot; no, su, 1o59))
Q. Perhaps you can identify the deposit of $500
on July 2, 1946? Ne NOpebie
Q. Are you able to identify deposit of $300 on
July 6, 1946? A. No, sir.
Q. Can you identify deposit of $300 on July 15,
1946 ? A. No, sir.
Q. Are you able to identify the deposit of $400
on July 19? Ay AN; sie
Q. You cannot identify any of the deposits in
this account?
A. No, sir; no, sir, because I don’t remember
what deposits I did, which I made very few for him,
My. Simpson: If your Honor please, at this time
I offer in evidence Petitioner’s Exhibit 33 just tes-
tified to by the witness.
Mr. Gardner: If the Court please, I object to
the introduction of this document. All it does is
clutter up this record. We don’t know whether that
account represents a business account, a personal
account. There has been no identification as to that
account.
The witness was unable to identify it, and as it
stands [570] now, it is just something sticking up
here in space in orbit.
528 Estate of Walter F. Rau, Sr., ete., vs.
(Testimony of Rose Goldstein.)
The Court: Unless it can be tied into this case,
more clearly than it has been up to this point, I
regard it as madmissible. You may reoffer it at a
later time, if you have further foundation upon
which to present it.
My. Simpson: If your Honor please, I believe
that the foundation has been laid by Respondent, if
you may hear me out, in that there has been consid-
erable testimony here by the bookkeeper, Miss Gold-
stein, the present witness, as well as by the man-
ager, Mr. Webb, to the effect that—and this is the
basic theory under which the Government is direct-
that there was a great, a large sum of
ing its case
money withheld in the form of cash.
This witness has testified that she has handled
large sums of cash during Mr. Webb’s absence,
particularly on Saturdays, Sundays, and holidays,
when there was as much as $150 a day withheld.
Now, the last person known to the Petitioner to
be this witness, or perhaps Mr. Webb, himself, and
in order to trace the final resting place of the money
which they said was withheld from the French Cafe,
and Southern Wine and Liquor, the burden has
been placed upon the Petitioner.
IT would assume under that theory to disprove
that [571] the Petitioner, himself, retained the
funds; in order to refute that I think it has a legal
and logical relevancy to the testimony already elic-
ited by the Respondent’s counsel from this witness,
as well as from Mr. Webb.
Mr. Gardner: May I answer, your Honor?
Commissioner of Internal Revenue 529
(Testimony of Rose Goldstein.)
Relating to the moneys that are alleged to have
gone to the Petitioner’s decedent, Mr. Rau, there is
in the stipulation of net worth, this net worth will
show substantial understatements in each of the
years 42, 743, ’44 and ’45; this money at least stuck
to his fingers, because we have agreed to it.
Now, that is the quantity and the amount there;
we allege further, of course, that the deficiency de-
pends upon the specific item adjustment, but is
supported, strongly corroborated by the net worth
statement agreed to.
So, whether or not this witness got $10—assuming
she did—and I don’t believe it for a minute, but
assuming she did get $10, that has nothing whatever
to do with the income tax deficiencies being set up
against Mr. Rau.
The Court: If any of the funds were diverted
to this witness, I would think that that would have
a bearing upon this case, and if counsel for Peti-
tioner has any proper evidence to show that there
has been any such diversion, I would admit such
evidence. [572]
I am not admitting this exhibit, because I believe
that it is too remote and that there has not been
laid a sufficient foundation to show the circum-
stances of the evidence that has been presented thus
far, that they, that this represents any diversion of
funds to this Petitioner of Mr. Rau’s moneys.
Mr. Simpson: May I be heard, your Honor?
I believe that the record will ultimately show,
perhaps I may be able to tie this evidence in with
530 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
that—I believe I should be given the opportunity
to do so, in this respect, that the amounts that these
witnesses had testified to, which are in excess of the
amounts that now appear by way of the stipulated
net worth, will, when considered in the light of all
the evidence that can be adduced here, corresponds
and almost, I would say approximate that which has
been testified to as not being reported.
Now, if in the event I am unable to prove that,
then I believe that the evidence should be stricken,
and that I believe is right. But if I can tie in their
testimony with their own personal and private af-
fairs, as we have done with Mr. Rau, the Petitioner,
then I think that I have tied in my evidence with
theirs.
I would like to be permitted to pursue that, be
permitted, admitted additionally if the amounts I
have shown [573] her do approximate the amounts
which they say was not reported. Stricken, if not.
Mr. Gardner: I have no objection to him tying
it up with proper evidence. This I do not believe
is proper evidence, and I reiterate my objection.
The Court: Are there any deposits appearing
upon the proposed exhibits in addition to the ones
that you have interrogated the witness, that you
wish to rely upon?
Mr. Simpson: I don’t believe I will state this
for the record. I will, after I approach the bench.
The Court: You may state it for the record.
Mr. Simpson: There is another deposit of an-
other employee who is absent.
Commissioner of Internal Revenue dol
(Testimony of Rose Goldstein.)
The Court: I am talking about this exhibit.
My. Simpson: This exhibit, ves, I have two more
vears in connection with this particular exhibit,
vears 19——
The Court: I am talking about this exhibit, it
is not about other papers.
Mr. Simpson: No. This is the only deposits that
I have in connection with this.
The Court: Are the ones that you interrogated
the witness about; you interrogated the witness
about ?
Mr. Simpson: Deposit on the——
The Court: About specific deposits appearing on
Exhibit 33 [574] for identification, are there any
other deposits on Exhibit 33 for identification
that vou rely upon, apart from the ones that you
inquired of the witness?
Mr. Simpson: Yes. I relv on all the deposits in
that exhibit.
The Court: I regard this exhibit as verv remote.
The testimony has been that Mr. Longway, himself,
was in business of one sort or another. He had af-
fairs of his own, apart from this witness. The de-
posits are quite inconclusive.
Nevertheless, out of an abundance of caution, I
will reverse my ruling and admit this exhibit for
whatever it may be worth, and I will give Peti-
tioner’s counsel the opporutnity to tie these particu-
lar figures in. If he does not tie them into this case,
they will obviously be of no bearing upon the
Court’s decision to be rendered herein.
D32 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein.)
(The document heretofore marked for iden-
tification as Petitioner’s Exhibit No. 33, was
received in evidence. )
Mr. Simpson: Mark these 12 sheets as Peti-
tioner’s Exhibit for identification next in order.
The Clerk: Petitioner’s Exhibit No. 34 marked
for identification.
(The documents above referred to were
marked Petitioner’s Exhibit No. 34 for iden-
tification.) [575]
Q. (By Mr. Simpson): Miss Goldstein, I hand
you Petitioner’s Exhibit 34 for identification, being
the personal bank account of Jack Longway in the
Bank of America for the year 1947, and ask you to
examine it and see if you can determine whether
or not you made any deposits that you referred to,
that were made for your husband in that year?
A. I cannot testify to it.
Q. Do you know whether or not you made any
deposits in here? A. No, sir.
Q. Did you make any or do you know?
A. I don’t recall making any deposit for Mr.
Longway. He took care of that all himself.
Mr. Simpson: If your Honor please, I offer into
evidence Petitioner’s Exhibit 34, identified by the
witness, testified to by the witness.
Mr. Gardner: Same objection as to the previous
document, your Honor.
=O
Commissioner of Internal Revenue Ov
(‘Testimony of Rose Goldstein.)
The Court: This one is even weaker than the
previous one, since the witness cannot testify that
she made any deposits during this vear on behalf
of her husband.
Nevertheless, I will admit it for the purpose of
giving Petitioner's counsel the opportunity of tying
it into this case. If he fails to do so, it will have
no [576] effect upon the court’s decision.
(The document heretofore marked for iden-
tification as Petitioner’s Exhibit No. 34 was
received in evidence. )
Mr. Gardner: Very well.
Mr. Simpson: Nine sheets as Petitioner’s Ex-
hibit next for identification, next in order.
The Clerk: Petitioner’s Exhibit No. 35 marked
for identification.
(The document above referred to was marked
Petitioner’s Exhibit No. 35 for identification.)
Q. (By Mr. Simpson): Miss Goldstein, I hand
you Petitioner’s Exhibit No. 35 for identification in
the personal bank account of Jack Longway, vour
husband, for the year 1945, and ask you to examine
this exhibit and state whether or not vou can iden-
tify any of those deposits as having been made by
you? ieee ecanimiat:
Q. I wish to call your attention to, specifically,
to deposit of $4,700 on December 15, 1945.
A. I don’t know of any, whether IT have nothing
to do with his deposits or his checking account.
5384 Lsiate of Walter F. Rau, Sr., ete., vs.
(Vestimony of Rose Goldstein.)
Mr. Simpson: Your Honor, I offer in evidence
at this time Petitioner’s Exhibit 35, just testified to
by this [577] witness.
Mr. Gardner: Same objection as to the previous
exhibit, your Honor.
The Court: I will admit it but I regard it as
subject to the same infirmities that I indicated with
respect to the preceding exhibit.
(The document heretofore marked for iden-
tification as Petitioner’s Exhibit No. 35, was
received in evidence.)
Mr. Simpson: Excuse me a minute, your Honor.
Q. (By Mr. Simpson): Miss Goldstein, have
you ever operated a business with your husband?
A. What do vou mean?
Q. To be more specific, have you operated or
obtained a certificate of business from the officials
of the City of Bakersfield?
A. My husband did.
Q. Did you?
A. No, sir, to my knowledge.
Q. Still a little bit more specific then, perhaps,
do you have an interest in the Tejon Wholesale
Grocers ?
A. It is my husband’s business. Naturally I am
his wife, there would be an interest for the both
of us.
Q. What I would like to find out from you, Miss
Goldstein, is do you operate that business with your
Commissioner of Internal Revenue D30
(‘Testimony of Rose Goldstein.)
husband [578] as a partner? A. No, sir.
Q. In what capacity do you operate the business
with vour husband ?
A. I took care of the books there, doing the post-
ing up until the time of my accident. Then I haven’t
touched them since.
Q. At the time of your accident, when was that,
1956? A. 756, yes.
Q. Well, did you have an interest with vour
husband in a business known as the Tejon Grocers
before 1956?
A. I didn’t have an interest in it. He was the
one that was operating it.
Q. Did you file a certificate of business under a
fictitious name for operating that business ?
A. He must have; it would be on record.
Q. Did you sign it with him?
A. I don’t recall.
Mr. Simpson: May I have a moment, your
Honor?
Q. (By Mr. Simpson): Miss Goldstein, did you
ever buy an interest in a business with your hus-
band? A. No, sir.
Q. At any time? [579] cS ING sir.
Mr. Simpson: I have no further questions, your
Honor.
536 listate of Walter F. Rau, Sr., etc., vs.
(‘Lestimony of Rose Goldstein.)
Redirect Examination
By Mr. Gardner:
Q. Miss Goldstein, referring to the questions
asked you by Petitioner’s counsel, relating to the
deposits to the bank account of Rose Longway,
agent, that is Exhibits 28, 29, 30, 31 and 32, I be-
heve you testified that that was from your—that the
deposits came from your income tax; is that right?
A. Income tax, or other business income.
Q. Yes. Now, what other businesses did you
have?
A. Well, my Notary, did mimeographing, or any
money that I received so much on accounts that I
was supposed to take care of.
@. You had income from your work as a stenog-
rapher ? A. Yes, sir.
@. <A public stenographer, too, did you not?
A. Yes, sir.
@. Now, there was one other point mentioned,
I believe you stated in answer to questions by Peti-
tioner’s counsel, Mr. Simpson, that the French Cafe
had no inventories; do you recall that, Mrs. Gold-
stein?
A. Up until the time I advised Mr. Rau he bet-
ter show an inventory, which he did for two years,
and after that he dropped it. [580]
Q. What two years was that, Mrs. Goldstein?
A. I don’t recall whether it was—unless I saw
the records.
Commissioner of Internal Revenue Oot
(Testimony of Rose Goldstein.)
Q. J hand you Exhibit 3H, the 1943 income tax
return of Walter F. Rau, and turning to the sched-
ule therein relating to the French Cafe, do you see
an item marked inventory in that year?
A. Yes, siv.
Q. That is one of the years that vou did set up
an inventory; is that correct? A. Yes, sir.
Q. Where did you get the figures that you used
there, Mrs. Goldstein?
A. Mr. Rau told me to take that. He would put
in a figure of $3500. He said with that that would
consist of inventory at the beginning of the year.
Q. All right. You had no other verification of
that? A No, sts
Q. Did he tell you the inventory to use at the
end of the year? A. Yes, sir.
Q. Now, referring to Exhibit 4F, the income tax
return of 1944 for Walter F. Rau, Sr., and turning
to the schedule therein relating to the French Cafe,
do you see any [581] inventory in that year?
Ap INO Sue
Q. You did not use an inventory then that year,
did you? Ame oss
Q. Referring to Exhibit 2D, the income tax re-
turn of Walter F. Rau for the year 1942, and turn-
ing to the schedule showing income from the French
Cafe, did you find any inventory in that year?
A. No, sir.
Q. Then the inventories that you did set up in
the income tax returns, when you set up, were set
up at the insistence of Mr. Rau?
538 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Rose Goldstein. )
A. I don’t just get that.
Q. When you did set up an inventory like in
the year 1943—— A. Yes.
(). Mr. Rau told you what figure to put it;
is that correct?
A. He was the one that gave me the figures.
Q. He is the one that gave you the figures?
iG Ves sir,
Q. That is the only reason you included them in
the income tax return? A. Yes, sir. [582]
Q. You didn’t keep a regular inventory, did
you? A. No, sir.
Mr. Gardner: No further questions, your Honor.
Mr. Simpson: No questions.
(Witness excused.)
Mr. Gardner: At this time I would like to offer
in evidence Exhibit U.
Is there any objection, Mr. Simpson?
Mr. Simpson: No objection.
The Court: Admitted.
(The document heretofore marked for iden-
tification as Respondent’s Exhibit U was re-
ceived in evidence.)
Mr. Gardner: I would like to inquire as to
whether or not all of Respondent’s exhibits marked
for identification are in evidence ?
The Court: Mr. Clerk, can you help us out?
The Clerk: Yes, your Honor. They are all in
evidence, all that have been marked.
Commissioner of Internal Revenue 539
Mr. Gardner: Respondent has no further wit-
nesses, your Honor.
Mr. Simpson: I would lke to call as my next
witness Betty Dorsey. [583]
BETTY DORSEY
a witness called by and in behalf of the Petitioner
herein, having been first duly sworn, was examined
and testified as follows:
The Clerk: Would you be seated and state your
name and your address, please?
The Witness: Betty Dorsey.
The Clerk: <A little louder, please.
The Witness: Just a minute, till I get my
breath.
The Clerk: All right.
The Witness: Betty Dorsey. 1107 Virginia
Street, Bakersfield, California.
The Clerk: Thank you.
Direct Examination
By Mr. Simpson:
Q. You have stated your name and address, Miss
Dorsey. Will you please state the—your business or
occupation, please?
A. Well, I take care of sick and have been for
good number of years.
And some people would say a housekeeper, but I
say I am a practical nurse. The doctor says a prac-
tical nurse.
540 Estate of Walter F. Rau, Sr., ete., vs.
(Testimony of Betty Dorsey.)
Q. Practical nurse. Have you been a practical
nurse in Bakersfield for a number of years? [584]
A. Yes, I have, sir.
Q. Miss Dorsey, I ask you whether or not the
occasion ever arose when you were employed by
Mr. Walter F. Rau, Sr., was a nurse for him?
A. That was the occupation I was supposed to
be employed by.
Q. And were you employed by Mr. Walter F.
Rau, Sr., as his nurse? A. Yes, sir.
@. And can you place the year in which you
began working for Mr. Rau?
A. I am going to be truthful about it. It was,
I think in the latter part of 745, that I started to
work, but what month I cannot tell you.
Q. But your recollection is around in the latter
part of ’45? A. Yes.
Q. Now, when you first went to work for Mr.
Rau, would you please explain the circumstances,
how it was that you did go to work for Mr. Rau,
who called you?
A. Well, I don’t know who called the rooming
house where I was rooming, but when I came in on
my day off from where I was working, the land-
lady said that Mr. Webb had been trying
Q. Mr. Webb? [585]
A. From the Southern Hotel.
Mr. Gardner: If the Court please, I can’t hear
this witness.
The Court: Would you speak up, Miss Dorsey ?
Commissioner of Lnternal Revenue ot1
(‘Testimony of Betty Dorsey.)
Lhe Witness: J am trying to speak up, your
Honor. 1 am sorry.
Mr. Gardner: ‘hank you very much.
Lhe Witness: When I came in on my day ofl,
where L was rooming, the lady said a Mr. Webb
from the Southern Hotel was trying to contact me.
Q@. (By Mr. Simpson): Did he contact you?
A. No, he did not contact me at the rooming
house, because I got ready and went up to the hotel.
Q. Who did you see when you came to the hotel?
A. Isaw Mr. Webb.
@. And what did he say to you?
A. J asked Mr. Webb what was wanted of me,
and he said Mr. Rau wanted to see me, and—excuse
me a minute—and I said, ‘‘Mr. Rau, what’s the
matter?’’ And he said, ‘‘ Well, he is ill.”’
Q. That is fine. Now, he said that he was ill.
Did you at that time then go up to see Mr. Rau
on that occasion ? A. Yes, I did. [586]
Q. And was Mr. Rau in bed?
A. Well, Mr. Rau was sitting on the—Mr. Rau
was sitting on the side of the bed. He was so large
he was just sitting on the side of the bed. I don’t
think he would walk from the way—in fact, I know
he couldn’t walk.
Q. Now, you did have an opportunity to—strike
that. I will phrase it this way.
When you began your employment as a practical
nurse for Mr. Rau, did you stay at the hotel where
he was? A. Yes, sir.
542 Listaie of Waiter F. Rau, Sr., ete., vs.
(Lestimony of Betty Dorsey.)
@. Did you have a room next to his when you
began working for him?
A. He had a suite of rooms there, of two.
@. Two?
A. And at that time when I first started to
work
Q. Did you occupy the room adjoining his?
A. My—mine was the front room on the couch.
Q. You worked 24 hours a day, so to speak?
A. I was there 24 hours a day; yes, sir.
Q. You began your employment, as you recall,
the latter part of 1945; did you remain with him
up until the day of his death?
pwicertainly did; ves si
Q. You did. Now, did you observe Mr. Rau’s use
of aleohol while you were working for him? [587]
A. Well, that was the trouble; yes, he was
quite
Q. He drank quite a bit, did he?
Neves, Sir.
Q. And would you say that he was intoxicated
or at least under the influence of alcohol most of
the day that you attended him?
A. Yes, he drank quite some.
Q. Yes. Now, did you endeavor to wean him
away from the use of alcohol to such excess, try to
reduce the amount that he consumed ?
A. I would try to govern it to the best of my
ability.
Q. Now, the state of his physical health at that
Commissioner of Internal Revenue 043
(Testimony of betty Dorsey.)
time, would you say was rather poor; did he have
difficulty in getting around?
A. Well, he went to bed. He was in bed, couldn’t
get around when I first went to working for him.
Q. I see. Now, during the time that he was up
in his room, did anyone bring any books and rec-
ords up to lim, and show them to him while you
were there with Mr. Rau?
A. Not to my knowledge; no, sir.
Q@. Not to your knowledge, you never saw any-
body bring any books or records, or any cash regis-
ter tapes up in the room and show them to Mr. Rau?
A. No, sir, not while I was in the room. [588]
Q. Did you ever see Mr. Rau examine and go
through any books and records of his business?
A. No, sir.
Q. Do you know Mr. Robert Webb?
A. Yes, sir.
Q. What was his position at the Southern Hotel,
if you know?
A. Well, I understood his position at the South-
ern Hotel was manager.
Q. Manager? ee es). site
Q. And did vou observe the extent of his activi-
ties in the management, were they quite evident,
prominent, that he was taking care of Mr. Rau’s
business for him, running the business I should say ?
A. Well, someone had to run it, beeause Mr. Rau
wasn’t able to go down. So, I presume Mr. Webb
was running it.
Q. Now, in connection with Mr. Rau’s mental
O44 state of Walter I’. Rau, Sr., ete., vs.
(Testimony of Betty Dorsey.)
condition, as a lay person, would you say that Mr.
Rau was mentally alert and sharp, keen minded?
A. Not at all times.
Q. Not at all times. Would you then say that he
was rather unresponsive or even slow mentally?
Perhaps I can rephrase that question and put it
to [589] you this way: in your observation of Mr.
Rau, in the way he talked or responded to anything
that you might say, or question raised, was he quick
and alert? A. No, sir.
Q. Were his answers? A. No, sir.
@. He was not? A. No, si.
@. Were there any occasions during which Mr.
Rau would often weap or cry?
A. Well, if company would come, yes.
Q. If company would come?
A. Ov lots of times when he would get to talking,
he would cry.
The Court: What period of time are you now
referring to?
The Witness: That is during when [I first started
to work. In fact, that continued on till he died.
The Court: Throughout 1946 and 1947?
A. Yes.
The Court: Or was this a condition that was
prevalent only near the end of his life?
The Witness: No, that was during 745. In fact,
from the first, when I first began to work for him.
Q. (By Mr. Simpson): [590] Now, Mrs. Dor-
sey, did you make close—no, strike that.
Commissioner of Internal Itevenue D495
(Testimony of Betty Dorsey.)
Did you clean and straighten the rooms that were
occupied by you and Mr. Rau?
Pee cs, Sil lead.
Q. Did you also send out Mr. Rau’s personal
clothing to the cleaners ?
A. Yes. His clothes went to the laundry and his
personal clothes would go to the cleaners.
Q. Did you empty his pockets of his clothes
before you sent them to the laundry or to the
cleaner ?
A. Well, if there was anything in the pockets,
I would have to take them out.
Q. You would have to take them out. On those
occasions that you were doing that, did you ever
remove any large sums of cash?
ieeeeNO.ncity tina Media 10%
The Court: Did he dress every day?
The Witness: No. When I first went to working
for him, your Honor, he couldn’t—in fact, I had to
make clothes, he was so large, he was 56 inches and
around, and so big that I couldn’t put any—he
couldn’t, he had to make pajamas to cover him, you
know. And he couldn’t dress himself. He never did
dress himself from the day I went to work for him
until. [591 |
The Court: Was he dressed on most occasions?
The Witness: After about three weeks, he would
be dressed and then he would come up and lay
down with his clothes on.
The Court: Did he ever leave the room at the
end of that three week period?
546 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Betty Dorsey.)
The Witness: Well, at first I wheeled him in a
wheel chair downstais.
The Court: He did go downstairs ?
The Witness: I would take him and put him in
the wheel chair, and put him in the elevator and take
him down in a wheel chair. Then I would let him
sit there and I would go upstairs and straighten
things up. Then about that time he would be ready
to come up again.
The Court: And did that practice continue every
day ?
The Witness: I just don’t understand you, sir.
The Court: Well, did he continue to go down
every day in the wheel chair?
The Witness: Well, he didn’t stay in the wheel
chair very long. He was out of the wheel chair.
The Court: And walking around?
The Witness: And then.
The Court: Was he walking around?
The Witness: I would help him and teach him
to get him walking, so he could straighten his legs
to walk. Then [592] he would go downstairs by him-
self and back up.
The Court: Without a wheel chair?
The Witness: Yes, sir. But he wouldn’t stay
downstairs. He would go down and come back up.
Q. (By Mr. Simpson): As far as Mr. Rau’s
personal needs are concerned, were they, would you
say they were very simple and unextravagant; he
didn’t require a great deal, did he, Mrs. Dorsey,
very simple needs, himself, personally? —
lord
Commissioner of Internal Revenue 547
(Testimony of Betty Dorsey.)
A. No, he didn’t require—you had to keep him
clean.
Q. Yes. But I mean, his personal needs.
Ee NO,
@. He wasn’t extravagant, spend a lot of money,
there were very simple needs? A. Yes.
Q. Now, this cleaning the room, did you ever
discover any large amounts of cash or currency in
his room? Ae ONO} sia
Q. Did you ever see any books and records
around in his room?
A. No, sir; no, sir, that I did not.
Q. Now, did you go downstairs with him on some
occasions when he went down in the lobby? [593]
A. Yes. I went.
@. On those occasions, did you ever see him
make any entries in any books in your presence?
A. No, because I wouldn’t stay with him.
Q. Do you know Miss Rose Goldstein?
Ae Wes; simei.do:
Q. Do you know whether or not, from your own
personal knowledge, while you were there, that she
took an active part in the management of this busi-
ness with Mr. Webb?
A. The only thing I can say to that is I took
eare of Mr. Rau, and as far as business is con-
eerned, I paid no attention.
Q. You paid no real attention to that.
IT have no further questions.
548 E'state of Walter F. Rau, Sr., etc., vs.
(Testimony of Betty Dorsey.)
Cross-Hixamination
By Mr. Gardner:
Q@. Miss Dorsey, is it Miss or Mrs.?
A. Mrs. Dorsey.
Q. Mis.? A. Yes, sit:
Q. Mrs. Dorsey, I believe you stated you were
employed first by Mr. Rau in 1945; is that correct?
A. JI think it was in the latter part of °45.
Q. In the latter part of 745? A. Yes. [594]
@. And from the time that you were first em-
ployed by Mr. Rau, in the latter part of 1945, you
stayed with him continuously up until the time he
died; is that right? A. Yes, sir.
Q. Now, by staying with him continuously, do
you mean that you were with him 24 hours a day?
uw Yes, sir.
@. Twenty-four hours a day?
A. Yes, sir.
Q. Well now, I believe you testified that there
were occasions when he would go downstairs in
1945 and you would be upstairs cleaning the room,
you weren’t with him continuously, were you?
A. Well, I was. I don’t know what else, I was
in the hotel that would, of course—of course, I
wasn’t by his side.
Q. You weren’t by his side? Am Yer
Q. In other words, he was doing what he wanted
to do and you were doing what you wanted to do
during the day? A. Yes.
Commissioner of internal Revenue 549
(Testimony of betty Dorsey.)
Q. When you first went there, as 1 understand
it, he was rather ill at that time; is that right?
A. Very ill. [595]
Q. And what was his trouble?
A. Well, alcohol and no eats.
Q. Alcohol and no what?
A. And he wouldn’t eat when he was drinking.
Q. <And he wouldn’t eat. Now, how long did it
take you to clear up this condition ?
Mr. Simpson: If your Honor please, I don’t
think there is any testimony on direct examination
that she cleared up that condition.
Mr. Gardner: I believe she has testified that she
tried to get him to quit drinking and there was
testimony that, to that effect, Mr. Simpson.
The Witness: J don’t know, it was all the time
that I was with him, I would try and govern liquor.
Q. (By Mr. Gardner): How long was he sick
in bed, Mrs. Dorsey?
A. That I cannot tell truthfullv. You know what
I mean, I can’t tell you exactly, but I think it was
three weeks.
Q. Three? A. Three weeks.
Q. Three weeks he remained in bed?
A. When he had to.
Q. How did he get his liquor when he was in
bed, and you were with him all the time? [596]
A. I would have to go out and shop. He would
use the phone and e¢all up and get it.
Q. He would use the phone and call up and
get it? A. Yes, phone was by his bed.
300 state of Walter #. Rau, Sr., etc., vs.
(Testimony of Betty Dorsey.)
Q. Phone was by his bed. Now, while you were
out—by the way, how long did you go out and shop
every day? A. Whatever time it took me.
Q. I didn’t understand you.
A. Whatever time it took me.
Q. What time would it take?
A. I couldn’t tell vou that.
Q. Four hours?
A. Oh, no, wouldn’t take me four hours.
Q. Take two hours?
A. No, I don’t think I would be gone two hours
at a time.
Q. How long would you be gone at a time, now,
this is during the first period that you went to work
for Mr. Rau?
A. Well, I wouldn’t know what to say to you
there, because I would go to the grocery store and
I would get material to make clothes.
@. What would you do at the grocery store,
Mrs. Dorsey ?
A. Well, I cooked his—I got to cooking his meals
in the room. [597]
Q. You got to cooking his meals. Now, was that
the understanding when you were hired that you
would cook his meals in the room?
No, sir.
When did that start?
Right after—well, right after he was up.
Excuse me? A. Right after he got up.
Right after he got up? A. Yes.
Now, we are talking about the time that he
DOObPOo>
Commissioner of Lnternal Revenue ool
(Testimony of Betty Dorsey.)
was in bed; you said that you weren’t there all the
time and you would be out shopping.
Now, how long were you out shopping?
A. Well, as long as to get me to take—get some
material to make him some clothes to wear.
Q. He didn’t have any clothes when you were
first hired ?
A. He didn’t have clothes, but they didn’t fit
him to suit me.
Q. How do you know whether they fit him to suit
you, when he was in bed all the time? Did you dress
him and put him in bed?
A. JI made pajamas, sir.
Q. You mean pajamas? [598]
A. Yes, sir.
Q. You wanted to make him some pajamas; is
that it? Ay What ig swhar i dids cir,
Q. I-see. How long did you—do you estimate you
were gone from his room on each day during the
initial period that you were employed ?
A. Not too long. I wouldn’t tell vou how long,
because I don’t know, but 745 is a long time back.
Q. Yes, it is. What I am trying to find out is
how he could get this liquor up there and remain in-
toxicated when you were with him constantly.
Now, that is not possible, is it Miss Dorsey?
A. Yes, because he had a phone by his bed, and
he could use his phone and have his liquor sent up.
Q. All right. And who would receive that liquor,
would that be vou?
A. No, because I wouldn’t be in the recom.
502 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Betty Dorsey.)
Q. You wouldn’t be there?
While I am out, he is getting his liquor.
Now, were you out every day?
Yes. I went out every day.
You went out every day? A. Yes\isnm
How long would you be out? [599]
That I ean’t answer you.
Now, is it possible that also the time you
were out every day that Mr. Webb or Miss Gold-
stein came up and talked to him about the business ?
A. Miss Goldstein never did come up. That is,
Miss Goldstein did not come up in the room while
I was there.
Did Mi. Webb?
Yes, Mr. Webb did come up.
Mr. Webb did come up? A. Yes.
And he talked to him about the business?
T don’t know what he talked about.
Where were you?
IT would go in the other room. That was not
OPoOoPop
>orLOPe
my concern.
Q. That was not your concern. But you do know
that Mr. Webb did come up there, didn’t he?
A. Yes.
Q. And could you state whether or not he was
earrying anything at the times that he would come
up?
A. Why, I never saw him have anything in his
hands.
Q. You never saw him?
Commissioner of Internal Revenue D003
(Testimony of Betty Dorsey.)
A. I would see him come in the room, and then
I would £600] step in the other room.
Q. You would see him but he could have had
something in his hands; you didn’t notice, did you,
Mrs. Dorsey ?
A. No. I would have noticed if he had some-
thing in his hand.
Q. You would have noticed? A. Yes.
@. Is it your testimony that he never came up
in his room while you were there with anything in
his hands? A. Yes, sir.
Q. That is your testimony, isn’t 11? Now, you
weren't there all the time, though, were you, Mrs.
Dorsey ? A. No, sir.
Q. And what he did during those times that you
were not there, vou cannot testify as to whether or
not he came up and at that time discussed the books
and records, can you? A. No.
Q. Now, you were gone each day of your em-
ployment from 1945 on, at some period of the day,
weren’t you, Mrs. Dorsey? |
A. I would have to go out and get groceries.
Q. Of course. And you wouldn’t want to stay
in the hotel room or by his side all the time, would
you?
A. Well, I was by his side practically all the
time. [601] IT even had to sleep where he could call
me.
Q. Surely. Now, you say you taught him to walk
again, and that was in 1945, wasn’t it?
A. Yes, sir, when he got up out of bed.
554 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Betty Dorsey.)
Q@. You taught him how to walk again? Did he
continue drinking?
A. Yes, sir.
Q. He continued drinking. And he was able to
walk, though? A. Yes, sir.
@. And he would go to the elevator and he
would go downstairs, wouldn’t he?
A. Yes, sir.
Q. And he would walk around downstairs, and
you would be up?
A. J don’t know what he did, walked around
downstairs, or what he did out of my sight.
Q. You don’t know, do you, but he would be
gone for periods of time each day, wouldn’t he?
A. Not very long at a time.
Q. Not very long at a time, but he would be
gone?
A. He would be gone out of the room, but he
wouldn’t be gone long at a time.
Q. How long would he be gone, Mrs. Dorsey ?
A. Oh, gosh. I never think of time. [602]
Q. I see. Time just doesn’t—you don’t nail
things down by hours, or two hours, or
A. No, sir. When you are working, taking care
of sick, you cannot.
Q. I see. But in any event, every day Mr. Rau
would go out to the elevator and go down and then
he would walk around with this cane that he had,
didn’t he? . |
The Court: I instruct the witness to answer
orally, rather than nodding her head.
Commissioner of Internal Revenue 500
(Testimony of Betty Dorsey.)
The Witness: I! think I do nod my head when
T talk.
The Court: The reporter cannot always see you
nodding your head.
The Witness: Beg your pardon. I am trving to
talk loud.
Mr. Gardner: I am sorry, your Honor
Would vou read the previous question, please?
(Question read.)
The Witness: Well, | knew he walked from the
room to the elevator and outside of that I don’t
know anything about it, because I wasn’t with him.
Q. (By Mr. Gardner): You weren’t with him.
In other words, he could have walked all over the
place and you wouldn’t have known it, would you?
A. As far as I am concerned. [603]
Q. Now, was he having trouble with his legs at
this time?
A. Oh, yes. His legs were swollen so he couldn’t
sit down with him.
Q. They were swollen? A. Yes.
Q. He had difficulty in walking on them, in fact,
didn’t he? A. 2 Yes, sir.
Q. If he became intoxicated, he couldn’t walk
on them at all, could he, Mrs. Dorsey ?
A. Well, he would go up to his room and lay
down.
Q. That is what he would do when he was fully
intoxicated, wouldn’t he? Now, I believe you have
556 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Betty Dorsey.)
stated that when Mr. Webb came and discussed
business, you left the room; is that right?
A. Well, I don’t know if he came to discuss
business or not. I don’t know what he did.
Q. You don’t know, but he was almost a daily
visitor when Mr. Rau was confined to his room,
wasn’t he? ya 42
Q. And that happened on all occasions when
Mr. Rau was confined to his room, Mr. Webb would
come up there and talk to him, wouldn’t he?
A. He would come up there; yes, sir. [604]
@. And you would leave, wouldn’t you, because
that was none of your business?
A. I wouldn’t leave, but I went in the room,
other room.
Q. You wouldn’t, couldn’t hear what they were
talking about, could you? A Nowesine
Q. Now, Mr. Simpson asked you whether or not
Mr. Rau appeared to be sharp mentally, and you
stated, I believe, not always. Would you clarify that
answer, please?
A. Well, he would be kind of, I don’t know just
how to express it, but he wouldn’t, he didn’t seem
to have any interest, or any—he would come to the
room and lay down and that is it.
Q. Now, when he was sharp mentally, because
as you stated not always, in some occasions when
he was sharp mentally, wasn’t he?
A. I would say not all the time that I was with
him.
Q. But some of the time?
Commissioner of Internal Revenue ay)
(Testimony of Betty Dorsey.)
A. No, he never was what I would eall sharp.
Q. He never was what vou would call sharp?
A. No, sir.
Q. Did you ever discuss any financial matters
with Mr. Rau? [605] AY NO, sil.
Q@. You never did. What did you discuss with
Mr. Rau?
A. Oh, I don’t know. What he would like to eat,
or if I could fix him something to eat, or
Q. Did you ever hear him discuss business with
anyone else? A. No, sir.
Q. You can’t say whether or not he was men-
tally alert as to business, can vou then?
A. Well, I don’t think so.
OF You cannot state that, can you? In faci as
far as you are concerned, and as far as you know,
he could be very, very sharp mentally, couldn’t he?
A. No, sir, he could not.
Q. Why was that now?
A. Because he didn’t have the right, well I can’t
answer that either.
@. You can’t answer it, can you?
Now, he was making a substantial income during
this period, wasn’t he, Mrs. Dorsey?
A. As far as I know, I don’t know anything
about his income.
Mi. Simpson: The witness testified she doesn’t
know anything about his business transactions. That
wasn’t even covered on direct examination [606]
either.
Mr. Gardner: That is what we are concerned
008 Estate of Walter Ff. Rau, Sr., etc., vs.
(Testimony of Betty Dorsey.)
with here, and I beheve her testimony relates to
mental eapacity, mental capacity relating to busi-
ness.
I¥ we stipulate that she knows nothing of his
mental capacity as to business matters, I am verv
happy.
My. Simpson: Iam objecting to the question, not
to be drawn into a stipulation of that nature, but
because it goes beyond the scope of the direct. She
has already said that she did not discuss business
or his finances with hin.
The Court: The witness answered that she didn’t
know. You may proceed.
Myr. Gardner: ‘Ehank you.
Q. (By Mr. Gardner): Now, the only time
actually that he was confined to his room in 1945
was the initial period that vou were there? Is that
correct, Mrs. Dorsey?
A. L was there with him all the time in 745, but
the first three weeks he was confined to his bed.
Q. He was confined to his bed then, and after
that, he was not confined to his bed; is that right?
A. Well, he was in bed most of the time.
@. Well now, did he get up and did he walk
around ?
A. He would get up and walk around some, but
not much. [607]
Q. Would he go downstairs?
A. TJ answered that, yes, sir.
Q@. Yes, sir, he would. Now, did that continue
throughout the year, the remainder of the year °45?
Commissioner of Internal Revenue 509
(Testimony of Betty Dorsey.)
A. Yes, sit.
Q. And did it continue throughout the year
1946?
A. In 746, I think that it was that he moved
out to his home and I went out there with him.
Q. And when about was that in 1946?
A, [emll not try to say, but 1 think it was in
the spring of the year.
Q. Spring of the year of 1946?
A. Yes, sir.
Q. Now, when you went out to his home, did
Mi. Rau make a practice of coming to the Southern
Hotel daily?
A. Well, I wouldn’t say daily, but I did take
him up to the Southern Hotel. IT would have to help
him in and out of the car, to get him up there.
Q. And when he got out, did he walk with the
aid of his cane? Ae Yes, six:
@. And he was a big man, now, wasn’t he?
A. He was 230 pounds.
Q. 230 pounds. Now, if he was thoroughly in-
toxicated, you couldn’t possibly carry 230 pounds,
could you, Mrs. Dorsey? [608]
A. I couldn’t carry it, but I lifted it.
Q. You could lift it? A. At that time.
Q. I see. Did you ever have to lft him?
A. Yes, sir.
Q. When he was intoxicated in and out of the
ear? A. Because when he was sick——
@. Just when he was sick?
A. When he was sick and from liquor.
o60 state of Walter F. Rau, Sr., etc., vs.
(Testimony of Betty Dorsey.)
Q. But he would be lying in bed, is that the
idea, Mis. Dorsey?
zi. Well, he never did stay up any length of time.
He would get up and go to bed and then you would
get him up end get him in bed, and then he would
want to get up. And I used to take him under the
armpits and lift him in his chair, and back in his
bed.
Q. I see.
The Court: After he moved to his house in 1946,
how often did he come down to the hotel ?
‘The Witness: Well——
The Court: Was it nearly every day?
The Witness: Well, say nearly every day.
My. Gardner: Thank you.
Q. (By Mr. Gardner): And why did you come
down to the hotel, Mrs. Dorsey ? [609]
A. Well, to get him out of the house, to give him
a ride.
@. Did he request it?
A. Well, he would want to go some place.
(). He wanted to go to the hotel?
A. And he would want to go down and look at the
hotel. It wouldn’t be there long.
Q. But he did want to go down there and look it
over? A. I don’t know but he would go down.
Q. That is the reason you went to the hotel, be-
cause Mr. Rau wanted to go there?
A. Yes, sir.
The Court: Did you have a chauffeur?
Commissioner of Internal Revenue Brel}
(Testimony of Betty Dorsey.)
The Witness: No, sir. I drove from the tume [I
went to work for him.
The Court: You drove?
The Witness: Yes, sir. I had to do all the
driving?
Q: (By Me. Gardner): Now, while he was out
at the home, at his home in 1946, I heheve you stated
about the spring of the year; was that correct?
A. I think so. I am not positive, that is a long
time.
Q. Well, it surely is, and you are doing very
well. [610] But when he did move out to this home,
did he spend most of his time at the home, or down
at the Southern Hotel? A. At the home.
@. At home? A. Yes, sir.
Q. And how much time a day would vou estimate
he spent at the hotel?
A. You would just about get him up there and
you would have to take him back.
Q. Was he suffering from intoxication during
this period, Mrs. Dorsey ?
A. Well, he wasn’t suffering from intoxication.
What I mean, he was suffering for the simple reason
that he had drank so much, then you had to give
him so much hquor all the time.
Q. You had to give him so much liquor?
Bee Veseail,
Q. Were you furnishing that to him?
A. I had to give him some each day to keep him,
not make him drunk, but to keep him agoing
Q. In other words, he wasn’t drunk then during
562 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Betty Dorsey.)
this period then, was he? You were rationing his
liquor, weren’t you?
Mr. Simpson: What period is this now?
Myr. Gardner: This is in 1946 after he moved out
to the [611] home and she moved with him.
The Witness: Well, he would be, sometimes he
would get pretty intoxicated out home.
Q. (By Mr. Gardner): How would he get in-
toxicated, if you were rationing his liquor for him?
A. You just had to give him it to him; if he
wanted a drink, I would give it to him.
@. Were you making him intoxicated, Mrs. Dor-
sey?
A. No, sir, I was not, because I had to work too
hard to clean up after him.
Q@. But you were attempting to keep him from
becoming intoxicated, weren’t you?
om Yes, Sing
Q. And I believe you testified that you gave him
just enough to keep him going?
A. Some days one little drink would knock him
for a loop. He was weak and that.
Q. During this period, at least you attempted to
keep him from becoming intoxicated, didn’t you?
A. Yes, sir.
@. And you were successful to an extent, weren’t
you, Miss Dorsey? A. To an extent.
The Court: How much liquor did he drink; do
you have [612] any recollection as to the amount
that he drank over a period of one day?
A. I never kept, your Honor, I never would
5
Commissioner of Internal Revenue 063
(Testimony of Betty Dorsey.)
keep a track of it, but at least in 24 hours it would
be a fifth that he would consume, easy, because I
had to be up nights with him, and in fact, I slept
right in the room where I could take care of him.
The Court: Were those exceptional days or was
that the usual amount of liquor he drank?
The Witness: Well, it was days one way and
days another way.
Q. (By Mr. Gardner): Now, going on over
into 1947, Miss Dorsey, you were with him during
that period of time, too, were you not, and did this
same condition prevail, that is, he would get up in
the morning? A. Yes, sir.
@. And you would put him in the car and take
him down to the Southern Hotel?
A. JI would get him up in the morning and bathe
him, and clean him and dress him. He never could
dress himself. I dressed him from the time I went to
work for him, and I would get his breakfast and
then oh, around, maybe 11:00 o’elock, maybe he
would go uptown.
(). You would go uptown because Mr. Rau
wanted to go [613] uptown, wouldn’t he, and you
would go to the Southern Hotel? A. Yes, sir.
Q. And this happened almost every day during
1947, didn’t it, up until the time the hotel was
demolished ? |
A. Well, I don’t know every day or not; I don’t
remember.
Q. Was it almost a daily occurrence, do you re-
member ?
564 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Betty Dorsey.)
A. It was quite often. I am going to say it that
way.
Q. Allright. Did Mr. Webb ever come out to this
residence of Mr. Rau’s during the year 1947?
Vesycin:
Rather frequently ?
No, sir. I would invite them out to eat.
I see. Sort of a social situation ?
Yes, sir.
Did he ever call out there to discuss business
tt Mr. Rau that you know of ?
A. Not that I know of.
Q. Not that you know of. In fact, all their busi-
ness was discussed down at the hotel, as far as you
know; is that correct?
[OP OPOopP
A. If there was any business discussed, it was.
Q. It was discussed at the hotel. You didn’t [614]
stay with him while he was in the hotel, did you Miss
Dorsey ? A. No.
Q. That apples to——
A. Once in a while I would go in and stay until
he was ready to go. He wouldn’t be gone long and he
would want to go home.
Q. The general practice when you took him down
to the hotel, was let him out and wander around and
do what he wanted to?
That is all I could do.
And you weren’t with him, in the hotel?
You mean wandering around with him ?
Yes. A. No, sir.
And you don’t know whether or not he was
OOPOor
Commissioner of Internal Revenue obo
(Testimony of Betty Doxsey.)
discussing business during this time, or not, do you?
A. No, sir.
Q. He could well have been discussing business,
eouldn’t he, Miss Dorsey ?
A. I don’t know anything about that, six.
Q. How much were you paid when you first, you
were first employed in 1945, Miss Dorsey ?
A. Well, it was funny. He paid me $25 a week.
Q. And who did you reach this agreement with,
Mr. Rau? [615] A. Mr. Rau.
Q. You talked it over with Mr. Rau?
A. That is the only one to talk to.
Q. Now, did he seem to know what he was talk-
ing about when he started talking about $25?
A. No, because he raised my salary in several
weeks.
Q. Raised it to how much? i Vosseaoe
Q. To $35? A. ~Yes, sir.
@. Did he state that he was satisfied with your
services ? A. Very much so.
@. Very much so, and that is the reason he raised
it; is that correct, Miss Dorsey ?
A. I think that was it.
@. At least he seemed to know the value of a
dollar as far as your services were concerned, didn’t
he? A. I think, I hope.
Q. Now, how did he pay you?
A. Well, at that—I don’t—I was trying to recol-
lect. I think he paid by check.
Q. You think he paid by check. Now, did he in-
struct Mr. Webb to pay you?
566 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Betty Dorsey.)
A. I don’t know. I get my check and that is
all [616] I know.
Q. Who gave you the check? A. Mr. Rau.
Q. Mr. Rau gave it to you, personally?
A. Yes, sir.
@. And did vou get the same amount, that is $35
a week, throughout the remainder of your employ-
ment with him?
A. No. In the latter years, and I don’t know
when they raised my salary to $50 a week.
Q. Who do you mean by ‘‘they’’?
A. I don’t know who did it. It was raised.
Q@. And Mr. Rau started giving you a cheek in
the amount of $50; is that right?
A. Well, Mr. Rau didn’t give it to me. Then it
was given to me through the bookkeeper, bank, or
something.
®. This was near the time of his death?
NG) Ves, Sit.
Q. And up until that time you received $35 a
week ? A. Yes, sir.
Q. Now, didn’t you have any vacations during
this period ? A. No, sir, I did not.
Q. Do you have any family that you would visit?
A. No, sir. Iam a woman by myself. [617]
Q. I see. And in other words, your sole thought
and care during all these years was Mr. Rau, wasn’t
it? A. Yes, sir.
Q. Did you become rather fond of Mr. Rau; I
mean, as a patient?
Commissioner of Internal Revenue O67
(Testimony of Betty Dorsey.)
A. You can’t take care of a baby and not care
for it. It is the same way with old people.
Q. You did care very much for Mr. Rau, didn’t
you?
A. No. I can’t say that I cared a lot for him. I
felt sorry for him and I will say it that way. He was
helpless. He couldn’t do anything for himself.
Q. Now, did you become acquainted with his
family ?
A. Well, yes. You ean’t help but become familiar
with the family.
Q. When did you first become familiar with, say
for example, Mr. Rau’s son, Rau, Jr.?
A. Well, up at the hotel there, he came to see his
father.
Mr. Simpson: If vour Honor please, this defi-
nitely goes beyond the scope of the direct examina-
tion of this witness. I don’t know that it is material
to the inquiry before the Court, in any way. I think
it is irrelevant and also goes beyond the scope of the
direct examination.
Mr. Gardner: I would like to see what the rela-
tionship is that exists here, your Honor. This is vital
testimony [618] and JT would like to see whether or
not there is any possible prejudice one way or
another. I think I am entitled to interrogate into
that.
Mr. Simpson: I think that the witness testified
only with respect to the care that she gave Mr. Rau,
Sr. And not with respect to whether or not she dis-
568 listate of Walter flat, Si elene
(Testimony of Betty Dorsey.)
liked or liked, or loved or hated anybody in the
family, or any of his friends.
There is no question of whether or not she took
eare of this man.
The Court: I will allow Counsel reasonable lati-
tude.
Mr. Gardner: Thank you, your Honor.
Q. (By Mr. Gardner): Now, when did you first
meet Mr. Rau, Jr.?
A. Oh, IT met Mr. Rau, Jr., there in the hotel, but
not to know, not to speak to him or anything. But to
really know him, or see him, was when he came to
see his father there in the hotel.
Q. Inthe hotel, and became acquainted with him,
at that time, didn’t you? A. And his wife.
Q. With him and his wife. Did you like him?
Mr. Simpson: If your Honor please, now this is
something that I feel that I must object to, whether
or not this witness hked anybody. I don’t get the
significance [619] of it. I certainly didn’t ask her on
direct examination whether she liked or disliked
anybody, or any member of Mr. Rau’s family, or in-
laws. That could go on ad infinitum into cousins,
nieces, and how this can be helpful to this inquiry,
I don’t understand.
The Court: Counsel is entitled to explore the
question of whether the witness might be prejudiced,
and as I said before, within reasonable limits I will
permit him to do so.
You may continue.
Mr. Gardner: Thank you, your Honor.
Commissioner of Internal Revenue 069
(Testimony of Betty Dorsey.)
Q. (By Myr. Gardner): Would you answer the
question, please ? A. I don’t remember.
Mr. Gardner: Would you read the question
again, please?
(Question read.)
The Witness: Well, God put us on this earth to
like everybody.
Q. (By Mr. Gardner): Do you consider Mr. and
Mrs. Rau, Jr., friends of yours, right now ?
A. Well, I don’t know. As far as I know, they
are.
Q. You saw them rather frequently during these
years, too, didn’t you, Mrs. Dorsey ? [620]
A. Not too frequently.
Q. How often would they come to visit Mr. Rau,
Sr., during the years 1945, ’46, 747, ’8, 79, and 750?
A. I will not try to answer that, sir, because I
cannot.
@. Was it once a year, twice a year?
A. Jt was more than that, but how many times I
don’t know.
Q. Was it rather frequently ?
A. No. I don’t think it was. If I remember right
—now, I am answering to something I am not posi-
tive.
Q. Well, that is all right. It is hard to remember,
I realize that.
Now, you state that you have no family of your
own, didn’t you, Mrs. Dorsey?
A. No, I am by myself, sir.
570 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Betty Dorsey.)
@. All by yourself? A. Been for years.
@. And in effect, you just sort of adopted the
Rau family, didn’t you?
A. When you are taking care of sick—may I
answer it this way—you can’t help but form a feel-
ing for your patient and their family.
(). And for these years, 1945 on up to the time
Mr. Rau died, they were your family, weren’t they,
Miss Dorsey ? [621] A. Yes, sir, they were.
@. In fact, were you remembered in Mr. Rau’s
will?
Mr. Simpson: Object, your Honor. That goes be-
yond the scope of the direct examination.
The Court: The witness may answer.
The Witness: Yes, I was, but I didn’t know it
until after his death.
Q. (By Mr. Gardner): But you were remem-
bered along with the other members of the family,
weren’t you, Mrs. Dorsey? A. Yes) sire
Mr. Gardner: No further questions, your Honor.
Mr. Simpson: I have no questions, your Honor.
The Court: You may step down.
The Witness: Thank you.
(Witness excused.)
Mr. Simpson: If your Honor please, the Peti-
tioner rests. [622]
* * *
Commissioner of Internal Revenue otL
WALTER SLATER
ealled by and in behalf of the Petitioner, having
been first duly sworn, was examined and testified as
follows:
The Clerk: Will you be seated and state your
name and your address, please?
The Witness: My name is Walter Slater; my ad-
dress is 830 Laguna Road, Pasadena, California.
The Clerk: Thank vou.
Direct Examination
By Mr. Werdel:
Q. What is your present business, Mr. Slater?
A. Iam presently an officer with Cook Company,
Equipment Company.
@. How long have you been so employed ?
A. Since the spring of 1954.
Q. Directing your attention to the year 1946 and
1947, is it true that at that time you were a revenue
agent for the Bureau of Internal Revenue?
A. That is correct.
Q. Where was your position of duty at that
time? A. In Los Angeles.
Q. In your capacity as revenue agent, were you
instructed to examine the federal income tax returns
of Walter F. Rau, Sr., of Bakersfield, California, for
the years 1942, 1943 and 1944? [630]
A. I made examinations of Mr. Rau’s returns in
Bakersfield, and I’m quite sure those are the years,
yes.
Bg 4 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Walter Slater.)
Q. Was this examination performed at Mr. Rau’s
place of business in Bakersfield ?
A. Yes, they were.
Q. What was—was that at the Southern Hotel?
A. That’s correct.
@. Do you recall what month of what particular
year you made the examination ?
A. I have had an opportunity to review the re-
ports that I prepared, and I’m quite sure from the
review of those papers that the examination was
made in the fall of 1946.
@. Did these records include the business known
as the French Cafe? A. That’s correct.
Q@. You have examined the exhibits that have
been placed in evidence in this case, have you not,
this morning ?
A. I have examined the reports that are pre-
pared at that time.
@. Based upon that examination and your recol-
lection, can you tell us whether the system of book-
keeping was a double entry system ?
A. To the best of my recollection I think, and as
these are all of the books and records which I ex-
amined at that time, I would say they were on a cash
basis, single [631] entry system.
Q. <A single entry system? And on a cash basis
for the purpose of determining income and loss for
return purposes, is that correct?
A. That is correct.
Q. Were there any control accounts that you saw
at the time of your examination ?
Commissioner of Internal Revenue v
(Testimony of Walter Slater.)
A. It is rather hard for me to recall at the time,
but In reviewing the report and the bcoks this morn-
ing, I would say that there was no contro! accounts.
Q. Could you as an experienced revenue agent
examine the checks, stubs, and determine loss and
gain of any of Mr. Rau’s business if any?
A. I don't beheve I understand that question.
Q. Could vou just examine the check stubs, or
the checks in the records that were supplied to you
and determine gain or loss in any of Mr. Rau’s busi-
nesses ? A. No, I don’t think so.
Q. Could you do so by examining the books of
accounts without control accounts ?
A. Jn Mr. Rau’s case?
Q. Yes. In any of his particular businesses on
any particular date, did you look at them and deter-
mine loss or gain?
A. Isuppose it could be done. I recall that [632]
I had considerable difficulty in examining the books
and reconciling the books to the returns, but
Q. Do you recall how many days you spent in
your examination ?
A. No, but I would imagine it would be four or
five days. That would be the total time that I spent
on a case.
Q. Well, in your opinion, were Mr. Rau’s books
and records adequate for the purposes of determin-
ing Income and expenses?
A. In my opinion, no. I had, as I say, I had con-
siderable trouble in examining the books and records
for the purpose of verifying the returns; and I am
Ded Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Walter Slater.)
not sure that even upon the conclusion of my exam-
ination that I had made what would be, what could
be said a fully satisfactorv examination of the books
and records to verify the return.
@. When vou made the income tax review for the
years “42, “43 and 744 for Mr. Rau, did you consult
Mr. Rau’s bookkeeper during the course of your
examination ? A. Yes, I did.
Q. Do you recall what her name was?
A. It was a Miss Goldstein.
Q. How often did you have discussions with her
regarding the books and records during your investi-
gation?
A. To the best of my recollection I was at this
place of business, I would say two or three days at
a minimum and each day I would discuss aspects of
the return or the [633] books.
@. Were these discussions held there at the
Southern Hotel? A. That is correct.
Q. Did you inform Miss Goldstein that you were
a revenue agent for the Federal Government?
A. Yes, I did.
@. Did you ask her for all the books and records?
A. That is correct.
Q. Did she tell you that she had supphed you
with all of the books and records?
A. I don’t recall her making any statements such
as that, but I would normally in examination ask for
all books and records to support the return.
Q. Did Miss Goldstein co-operate with you in
qn
C1
Commissioner of Internal Revenue
(Testimony of Walter Slater.)
assisting vou in the examination of the books and
records?
A. Miss Goldstein provided the records that I
examined. I didn’t feel she was particularly co-
operative as a representative of Mr. Rau.
Q. Will you explain your answer?
A. There were many questions in the examina-
tion of the books for the purpose of verifying the
return, the income and expenses, and when questions
were asked of Miss Goldstein regarding the books
and records for the returns, she was not very aide
sive, nor helpful. [634]
Q. I show you what is Petitioner’s Exhibit 20 in
this case and ask you to examine that?
A. Are all these substantially the same in form?
Q. Yes.
I asked you to review them before the hearing this’
morning. I now direct your attention to the fact that
those purport to be daily cash sheets for the year
1943 of the French Cafe representing what the par-
ticular person in charge of the cash register for the
particular shift would take off the top and certain
expenditures that were noted and made for the vari-
ous days that they designate.
IT ask you if that was part of the records that were
given to you by Miss Goldstein ?
A. I do not recall examining these records, no.
Q. I direct your attention to the fact that on all
of these sheets there are notations on the bottom and
on the side with certain amounts taken off the top
and ask you if you recall whether or not those figures
O76 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Walter Slater.)
were on any records that were supplied to you by
Miss Goldstein ?
A. Could you identify of what you are speaking
of here?
Mr. Werdel: If the Court please, some of these
were particularly identified at the hearings, and I
don’t recall which they were at the present [635]
time.
Q. (By Mr. Werdel): Directing your attention
to the first sheet on Exhibit 20, it shows the receipts
purportedly and evidenced by the tape on the par-
ticular date of $384.70, and that the total of $129
was paid out in cash leaving the balance of $283.86,
and that thereafter there is $10 deducted showing a
balance of $273.86; and that there was apparently
put back in $33.35, and there was banked a total
of $307.21.
ft ask you if you ever saw the figure of $10 being
subtracted without evidencing any cost on any daily
slip?
A. Ihave no recollection of seeing these records,
nor do I have any recollection of any so-called de-
duction. of $10.
Q. I call your attention to some of these on week
end which show $100 or more taken off the top. I
assume that you didn’t see any such entries either?
A. Not to my recollection.
The Court: You have no recollection of having
seen these sheets which comprise Exhibit 20?
The Witness: JI have no recollection of seeing
the sheets.
Commissioner of Internal Revenue aT
(Testimony of Walter Slater.)
Q. (By Mr. Werdel): I show you Petitioner’s
Exhibit 21 purporting to be the same type of sheet
for the vear 1944 in connection with the same busi-
ness, and I ask you if your answer would be the
same in connection with that exhibit? [636]
A. Yes.
Q. That you don’t recall having seen it?
A. My answer would be the same.
Q. Now, I show you Petitioner’s Exhibit 27 pur-
porting to be a copy of the report made by you after
the examination that you have been discussing for
the years 1942, 1943, and 1944, and I ask you if that
is a copy of your report 1f you recognize it?
ne Yes, L do.
Q. I direct your attention to the fact that it is
dated in late 1947, and I ask you if you believe——
Mr. Werdel: Withdraw the question.
Q. (By Mr. Werdel): That particular report
was not prepared by you, is that correct? I mean,
the typing of it was not done by you.
A. No, I did not type it. The schedules which are
attached computing the tax and the depreciation
schedules were prepared by me.
Q. Now, you have testified that your examination
took place in the latter part of 1946, and I direct
your attention to the fact that that report is dated
November, 1947.
A. I am not positive as to when I made the ex-
amination, but from reviewing the consent form
which was signed [637] by Mr. Rau which as I recall
was dated in 1946, I am satisfied in my mind that I
978 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Walter Slater.)
completed the examination in the fall of 1946, and
prepared the report in November or December.
That date on the report is the date that it is
mailed from the revenue agent’s office to the tax-
payer. It is not the date that I complete my exami-
nation.
Q. Now, after you had made your study for the
Southern Hotel for the years we have discussed, did
you discuss the results with Mr. Rau?
As Yes, 1. did.
Q. I mean, Mr. Rau, Senior.
A. The taxpayer, yes, I did.
@. Who was present when you discussed the re-
sults ?
A. I am quite sure that I had at least two dis-
cussions with Mr. Rau. I had a discussion at the
commencement of the examination to advise him who
I was, what years I was going to examine. I had a
final discussion with Mr. Rau at the time I had com-
pleted my report at which time I advised him of the
adjustments to income and the change in tax as a
result of my examination.
Q. Did you have that discussion with him alone
without others present?
A. No, I did not. Mr. Rau was in bed during the
entire time of my examination.
Q. And was [638]
A. I believe he was in bed during the entire time.
At least he was confined to the Southern Hotel, and
I was very concerned about Mr. Rau’s health, and I
insisted on either a doctor or a nurse being present
Commissioner of Internal Revenue org
(Testimony of Walter Slater.)
at the time I presented to him the final results of my
examination.
Q. Do vou know Miss Betty Dorsey, the nurse of
Mr. Rau?
I don’t recall the nurse’s name.
Was a nurse present ? A. Yes.
Was Rose Goldstein present?
That I eannot be sure of.
That discussion was held in his room at the
eeiticen Hotel, I take it? A. That’s correct.
Q. Did you make any observation of his mental
OPoor
condition at that time, as a lay person; was he able
to go over the records with you, was his physical and
mental condition such that he could? A. Yes.
Q. Now, based upon your knowledge of the
physical and mental condition of Mr. Rau, do you
believe he was able to understand his business condi-
tion by examining his books and records?
A. Whether or not Mr. Rau would be able to
understand [639] his business condition ?
Q. Yes. Would he be able to do the things to
determine gain or loss from the records of the book-
keeper Miss Goldstein?
A. Oh, I assume that he would be able to.
Q. You do not know, is that your answer?
A. No, I wouldn’t know.
Q. Do you know who set up the books, Mr.
Slater ? A. No, I do not.
Q. Did you make any determinations go as to
establish an opinion in your own mind as to whether
580 Estate of Walter F. Rau, Sr., ete., vs.
(Testimony of Walter Slater.)
or not Mr. Rau left the management of his business
to his employees because of his physical condition ?
Mr. Schessler: I object to that, your Honor, on
the grounds that this is a conclusion of the witness,
that he wouldn’t have any opinion. He was there for
the purpose of examining the books and records. He
was not there for any other purpose. I feel that that
would be an improper question.
The Court: If the witness knows, he may answer.
I don’t want any conjecture.
Mr. Werdel: That is the question J asked him, if
he knows.
The Court: If he knows, he may answer. He may
not base his answer on conjecture. [640]
The Witness: I would not know.
Q. (By Mr. Werdel): Now, directing your at-
tention to Exhibit 27, it is now in front of you, I
ask you if in the preparation of the material on
which the report was made whether you found any
evidence that would justify recommendation of
fraud in connection with the years 1942, 1943 and
1944, when you made your examination ?
A. No.
Mr. Werdel: That is all.
Commissioner of Internal Revenue O81
(Testimony of Walter Slater.)
Cross-Examination
By My. Schessler:
Q. Mr. Slater, when you went to Bakersfield to
exainine this case, this taxpayer, did you have any
other returns or were you just up there on this one
examination ?
A. No. I was assigned to Bakersfield from the
Los Angeles office with several returns to examine.
Q. Several. Do you mean three or four?
A. No. It would be considerably more than that.
I would say it would be most likely 25 or 30.
@. How long were you in Bakersfield, Mr.
Slater ?
A. ‘To the best of my recollection it was 60 days.
It was a 60 day assignment from Los Angeles.
@. Were you able to complete all of these returns
while you were in Bakersfield? [641]
A. Not all of them.
@. Were you pressed for time? A. Yes.
Q. Could we take it from that, that you were in a
hurry to get through your examination or didn’t
perhaps go into them as thoroughly as you might
have if you didn’t have so many?
A. I think that is true.
Q. Now, I believe you stated that you had four
or five days on this examination ?
A. To the best of my recollection, that is correct.
Q. Did that include field time and report writing
or just what was that?
r
582 Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Walter Slater.)
A. Ido not think that I would have spent that
amount of time examining the books and records of
the taxpayer. 't would be most likely two, two, to
three days, total time.
Q. How many examinations of this taxpayer did
you make? A. How many examinations?
Q. Yes. Did you make another examination, or is
this examination that we are talking about that you
have in front of you the only one?
A. That is the only examination that I made to
my recollection.
Q. Now, where was Miss Goldstein when you
were in [642] the hotel examining the books and
records in relation to your position ?
A. AsTI recall Miss Goldstein had a desk or office
in the lobby, and there was a sign either on her desk
or maybe it was on the outside of the hotel identify-
ing Miss Goldstein as a Notary Public, and a person
who prepared income tax returns.
She was in the lobby of the hotel to the best of my
recollection.
Q. Where were you?
A. I worked in her office part of the time and in,
I believe, they also had an accounting office or some
facilities where they kept their books and records.
Q. You weren’t at Miss Goldstein’s desk when
you were doing all this examining?
A. Not during the entire period of the examina-
tion.
Q. You stated that you saw Mr. Rau during that
examination approximately two times?
Conumissioner of Internal Revenue 583
(Testimony of Walter Slater.)
A. To the best of my recollection it would be
twice, yes. It might have been more. I am not sure.
Q. Is it possible that you could have seen him
more than twice ? A. Yes.
Q. Where was Mr. Rau at the times that you can
reeall seeing him? [643]
A. He was confined to his room in the hotel.
Q. Was he able to move around in his room?
A. Possibly he was up once during the, or he
was up out of bed during one of my visits there. I
was concerned about Mr. Rau’s health and the re-
sults of this examination on his health, and I think
he might have been up out of bed onee, but the other
time I think he was confined to his bed.
Do you recall talking to Mr. Rau?
Oh, yes.
Did he understand what you were doing?
ives
Did he know why you were there?
Yes, I’m sure he did.
Would you explain what you mean how you
are sure? You say you are sure he did understand,
did you have a conversation with him or
A. Most taxpayers recognize revenue agents, par-
ticularly when they identify themselves and they are
concerned with the results of their review of the
return and books and records, and Mr. Rau
Q. And Mr. Rau?
A. And Mr. Rau was concerned as most other
taxpayers.
Q. Now, I believe you testified as to Mr. Rau’s
OPOPore
584. Estate of Walter F. Rau, Sr., etc., vs.
(Testimony of Walter Slater.)
physical condition. Did you at any time during [644]
your examination notice Mr. Rau drinking?
A. No.
@. And he was under the influence of an alco-
holic during vour discussions with him?
A. Certainly not. In my opmion he was not.
Q. Did you diseuss your findings with anyone
besides Mr. Rau?
A. I am not sure whether an attorney or ac-
countant was called in by Mr. Rau at the conelu-
sion of the examination or not. I do not recall.
Q. Do you recall whether Miss Goldstein was
present at the time you discussed your conclusions
with Mr. Rau?
A. That I could not be sure of.
Q. How long were you in Mr. Rau’s room when
you were talking with him; do you have any recol-
lection ?
A. Well, the first meeting with Mr. Rau when I
advised him as to the purpose of my examining his
books and records would have been a very short
meeting; but the mecting with Mr. Rau at the time
I advised him as to the results of my examination, I
don’t recall precisely, but I would imagine it would
be an hour or two hours.
Q. In your examination of the tax returns for
these years, what books and records exactly did you
check, Mr. Slater?
A. To the best of my recollection it would have
been [645] the cash journals, receipts and disburse-
Commissioner of Internal Revenue O80
(Testimony of Walter Slater.)
ments. I had considerable difficulty, as I had men-
tioned before, reconciling the books with the returns.
Q. In reference to the exhibits that you checked
a minute ago, I belicve they are exhibits 20 and 21,
you stated that you didn’t recall whether you ex-
amined those; 1s that correct?
A. J] do not reeall seeing any such records in
connection with my examination, no.
Certainly they were not in looseleaf form like
that. I don’t recall reviewing such records at that
time. I do remember there being a form of cash
journal in bound form.
Q. That is all you can remember, some form of
eash journal?
A. That is all I can remember, and I don’t recall
too much about that.
Q. That is hazy recollection?
A. That is correct.
Mr. Schessler: That is all. Thank you, Mr.
Slater.
Mr. Werdel: If the Court please, I would just
like to ask one more question.
Redirect Examination
By Mr. Werdel:
Q. Mr. Slater, was Rose Goldstein ever in the
room [646] when you discussed any preliminary dis-
cussions rather that you had with Mr. Rau?
A. Rose?
Q. Was Rose Goldstein present when you had
586 Estate of Walter F. Rau, S7r., etc., vs.
(Testimony of Walter Slater.)
ever had a conversation with Mr. Rau in the course
of this examination ?
A. I ean’t be sure, but I assume she was at some
time.
@. Did you discuss the results of this examina-
tion with Rose Goldstein ?
A. I ean’t say for sure whether I did or not.
Q. Mr. Slater, I take it it is true that some time
in 1947, or at the close of your study and report, Mr.
Rau did bring in a different bookkeeper, is that
correct?
A. That I cannot be sure of. It was some time
ago.
Q. Well
A. I testified I think I completed this examina-
tion at the close of 1946.
@. Yes?
A. I think the date of this report is not correct.
I think it should be dated December, 1946.
Mr. Werdel: Well, perhaps I can state this to
the Court. During one of the days that I was absent
when the hearing was on, I understand that when
Mr. Reed because of the death of a member of his
family in the east or a serious [647] illness, was ex-
cused and at the time it was raised with regard to a
stipulation that Mr. Reed prepared the 1947 return
that is in evidence, and that some discussion was had
upon the subject of where he derived his informa-
tion for the 1947 return.
I have told Mr. Gardner that while I know per-
sonally that Mr. Reed made the 1947 return, I
Comnussitoner of Internal Revenue 587
(Testimony of Walter Slater.)
wasn't here for the conversations, and I would be
perfectly willing at this time to agree that he can
prepare a stipulation that it was—it was intended
at that time for Mr. Simpson’s signature with regard
to this subject.
My. Schessler: Your Honor, may I say something
on this matter?
The Court: Does this have anything to do with
this witness’ testimony ?
Mr. Schessler: No.
Mr. Werdel: I am through.
The Court: Are both parties completed in their
examination of this witness?
Mr. Schessler: We have no further questions at
this point, your Honor.
Mr. Werdel: No further questions.
The Court: You may step down, Mr. Slater.
(Witness excused.) [648]
% * *
Received and Filed July 25, 1958.
[Title of Tax Court and Cause. ]
CERTIFICATE
I, Howard P. Locke, Clerk of the Tax Court of
the United States, do hereby certify that the docu-
588 Estate of Walter F. Rau, Sr., etc., vs.
ments submitted under this certificate, 1 to 41, in-
clusive, as called for by the Designation of Contents
of Record on Review, are the original documents on
file in my office, excepting the original exhibits which
are separately certified, and a true copy of the
docket entries as they appear in the official docket
of my office, in the case docketed at the above num-
ber, in which the petitioner in this Court has filed
a petition for review.
In testimony whereof, I hereunto set my hand and
affix the seal of the Tax Court of the United States,
at Washington, in the District of Columbia, this 15th
day of March, 1960.
[Seal] /s/ HOWARD P. LOCKE,
Clerk of the Court.
oe
[Endorsed]: No. 16823. United States Court of
Appeals for the Ninth Circuit. Estate of Walter F.
Rau, Sr., Deceased, Raymond J. Shorb, Administra-
tor With the Will Annexed, Petitioner, vs. Commis-
sioner of Internal Revenue, Respondent. Transcript
of the Record. Petition to Review a Decision of The
Tax Court of the United States.
Hiled and Docketed: March 21, 1960.
/s/ FRANK H. SCHMID,
Clerk of the United States Court of Appeals for the
Ninth Circuit.
Commussioner of Internal Revenue 089
In the United States Court of Appeals
for the Ninth Cireuit
No. 16823
ESTATE OF WALTER F. RAU, SR., Deceased,
RAYMOND J. SHORB, Administrator With
the Will Annexed,
Petitioner on Review,
VS.
COMMISSIONER OF INTERNAL REVENUE,
Respondent on Review.
STATEMENT OF POINTS RELIED UPON
Pursuant to Rule 17 Sub-paragraph 5 of the Rules
of the Court, the Petitioner sets forth the points
upon which it intends to rely:
(1) The penalty provided for under Section
293(b) I.R.C. 1939, does not survive the death of a
decedent when death occurred prior to the imposi-
tion thereof.
(2) The net worth method represents the only
reasonable basis upon which decedent’s income can
be properly determined.
(3) The evidence presented by Respondent fails
to support its allegation of fraud within the meaning
of Section 293(b) I.R.C. 1949.
590 Estate of Walter F. Rau, Sr., etc., vs.
(4) Under the rules of evidence, Respondent’s
witnesses have been impeached and discredited.
(5) The Statute of Limitations is a bar to the
assessment and collection of any tax for the years
1942, 1943 and 1944.
/s/ ELLSWORTH T. SIMPSON,
Attorney for Petitioner on
Review.
Certificate of service attached.
[Endorsed]: Filed March 24, 1960.
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